Media Trends

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Introduction Technology and changes in consumer preference continue to shape the media and communications landscape. While regulation and economic trends play a role in influencing some of the outcomes of domestic and international media developments, it is the dynamic nature of the industry that continues to be reflected by on-going marketplace transformation. In the first of a series of quarterly reports on Media Trends we explore the current environment in which the subscription television sectors of Australia, the United Kingdom and the United States are operating. Our analysis this quarter indicates that subscription television distribution is being affected by a number of variables including economic conditions and changes in consumer preference. At the same time innovation is offering consumers greater choice of reception devices and content. Multiplatform opportunities are also being utilised by industry and adding value to the relationship with viewers. While difficult economic conditions in the United Kingdom, and to a lesser extent Australia, resulted in continued growth in subscriber numbers and profit cable television providers in the United States have been impacted by unprecedented declines in subscriber numbers. With 3DTV and TV anywhere services being rolled out across a number of countries there is still a level of uncertainty in relation to consumer interest, particularly in relation to 3DTV.

The proliferation of media devices such as internet enabled TVs, internet connected set top boxes, streaming devices and TV services on iPad and mobiles is emphasising the importance of access to content. Social TV, where an internet connected TV becomes a social media device, is also being reflected through developments where EPG providers are pioneering systems which let subscribers discover what their friends are viewing via Facebook and Twitter. The growth of multiplatform TV formats continues to be recognised both in the United Kingdom and Australia. The Australian subscription television industry also continues to invest in multiplatform local productions, such as Slide, which will launch in 2011. In 2010, television remains the main ad medium in terms of share of total global ad spend. Statistics indicate that positive trends will continue for the Australian and international advertising markets in 2011. This quarterly report also highlights domestic and international trends in TV viewership, media stacking habits, online video and the take-up of web enabled devices.

Media Trends

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STV Distribution Current subscriber and profit margins are being influenced by economic trends and changes in viewer preference brought about by technological development. Growth in traditional subscription television take-up is being supported and challenged by growth in alternative distribution platforms such as broadband, satellite and IPTV.

UK: BSkyB, Virgin Media results For the quarter ending 30 September 2010, BSkyB net profits rose 78.1% to £228m, mainly from broadband and telephony take-up. This month BSkyB also passed its long term target of 10m subscribers. Annual ARPU hit a record £514, boosted by HDTV and broadband. A 39% leap in triple-play customers sent the total to 2.3m. News Corp’s bid to take full control of BSkyB has been referred to the European Commission (EC) on competition grounds. The EC and Ofcom will both respond in December. News Corp currently has a 39.1% stake in BSkyB. For the same quarter, cable operator Virgin Media’s revenue grew 6.4% to £978m. It added 14,100 customers, for 4.78m total. 3.77m are TV subscribers; with 1.4m taking HD. Monthly TV ARPU is £46.39, mobile £15.01. Triple-play subscribers are 62.7%, quad-play 11.5%. Virgin will launch 100Mb broadband and TiVo in Q4. Australia: AUSTAR, FOXTEL results For the quarter ending 30 September 2010, AUSTAR’s TV subscribers grew by 14,771 to 761,919. MyStar subscribers rose to 180,998 (29% of residential subscribers). Revenue grew to $180.1m, a 6% increase on Q3 2009. FOXTEL’s earnings (EBITDA)for the year to 30 June 2010 grew by 17.5% to $477m.Profit Before Tax grew to $160m. Subscriber numbers grew to 1.632M and ARPU rose sharply from the take up of FOXTEL iQand HD TV services.

USA: STV under pressure? Leichtman Research Group reported the top 10 cable providers lost 1.4m cable TV subscribers in year ending Q1 2010. Satellite operators gained 1.33m subscribers and IPTV 1.78m.

US STV Subscribers

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0

2Cable

Satellite

IPTV

STV subscribers Q1 2009 – Q1 2010 (millions) SNL Kagan found total US STV subscriptions declined for the first time ever in Q2 2010. All operators combined lost 216,000 customers. However, satellite added 81,000 subscribers, IPTV 414,000. Cable operator Time Warner may introduce lower-cost tiers to regain subscribers. Cord-cutting anxiety There is ongoing debate in the USA about whether consumers are dropping STV services or ‘cord cutting’ in favour of on-line or over the top (OTT) services. SNL Kagan argues that low housing formation and high unemployment caused cable subscribers to fall, not OTT competition. Yet, Convergence Consulting forecasts cord-cutting homes will grow to 1.6m by end 2011.Analysts at investment bank Credit Suisse predicted Apple TV and Netflix OTT services will replace cable for young consumers. Netflix and cable operators are competing via windows and prices. Netflix is paying Paramount, Lionsgate and MGM almost $1bn over five years for online streaming rights to first-run movies ahead of cable. While Cable operators are in talks with studios Sony, Warners and Disney for a trial to show films soon after cinema release, at $30 per viewing.

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3D and TV Everywhere In the United States American research by CTAM (Cable & Telecommunications Association for Marketing) found consumers expect to pay an extra $20 monthly to get 3D STV, but still need convincing of the benefits. Sky launched Europe’s first dedicated 3D channel on 1 October, 2010 and FOXTEL will launch Australia’s first 3D channel in November this year. In the US Time Warner and Comcast are currently trialling a TV Everywhere video internet service. In Australia, FOXTEL On Demand currently uses broadband Internet to deliver content to TVs via its 780,000 iQ set-top boxes.

FOXTEL OnDemand includes 30 live streamed TV channels, catch-up programming from the channels at no extra cost and On-demand TV shows and movies rentals. FOXTEL also recently started rolling out services via Microsoft Xbox 360 consoles. The AUSTAR Anywhere service also enables Australian subscribers the ability to view programming on up to two PCs per AUSTAR account at no extra cost. It provides a content download and streaming service with hundreds of hours of premium content from 38 channels, plus the online-only sports channels ESPN360 and Setanta-i.

Innovations Convergence is altering the once distinct television and online environments. New and planned internet connected TVs; set top devices such as Apple TV, Google TV, the Telstra T-Box, IPTV services and online streaming are offering consumers greater choice. The proliferation of media devices is in turn emphasising the importance of access to content. Connected TV Consumer electronics manufacturers, technology giants and STV operators are competing and partnering in a race to connect the home television set to the Internet. At stake is the opportunity to offer consumers next-generation television services: video-on-demand, information and social networking. In the USA, Apple and Google are head-to-head with rival devices and philosophies. The Apple TV mini set-top box provides TV shows and movie rentals from iTunes and Netflix. It does not access websites nor so far include the software applications (apps) for interactive services that made the iPhone and iPad so successful.

Google is partnering with Sony for TV sets and Logitech for set-top boxes. The boxes are available at retail and subsidised to DISH satellite TV subscribers. Google TV emphasises its comprehensive video search. It also has a PC-style browser, accessing the whole Web. Sites from partners including TBS, CNN and Cartoon Network have been redesigned for TV viewing. HBO is making its content available. Internationally, seven of the 10 major TV manufacturers are selling sets that use the Yahoo Connected TV platform. Samsung is budgeting $70m to market its connected TV apps. In Australia, the Telstra T-Box offers movie rental and Unmetered BigPond Internet TV. AUSTAR owner Liberty Global is rolling out connected TV in its European cable systems. However, there are major challenges in clinching deals for broadcasters’ content. Google TV is blocked from the Web sites of US broadcasters ABC, CBS and NBC. Google TV’s lead product manager Rishi Chandra said Google TV is “a platform” and broadcasters could use a service like YouTube to monetise content, with ad revenue share.

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Social TV One significant consequence of connecting TV sets to the Internet is the television becomes an online social device (social TV). Consumers can access social networks such as Facebook and Twitter via the TV set. Many viewers, particularly in younger demographics, already use them via laptops or mobiles to share opinions about what they are watching on TV, especially in relation to music video and sports events. Facebook is reportedly in talks with US TV networks “at least in research mode for social TV.”

STV operators are also recognising the importance of social relationships in recommending content to boost VOD buy rates and encourage people to take higher tier packages. EPG providers, such as News Corp’s NDS, are pioneering systems which let subscribers discover what their friends are viewing, via Facebook or Twitter.

New Developments in Programming Broadcasters are supporting new television formats that make the most of multiplatform opportunities to engage audiences. New transmedia TV formats and extensions are emerging across a range of genres, often with viewer participation via social media. Multiplatform TV formats In the UK, Channel 4 docu soap-reality hybrid Seven Days invites viewers to give the show’s participants advice about their dilemmas via sharing “thoughts” (ie comments) with them on the show’s site. MTV’s Being Victor blends social media and Web drama to let viewers discuss serious issues relevant to a teen audience. The show has been growing its audience via an in-character blog and tweets. Venerable soap Coronation Street launched its social networking game Corrie Nation on Facebook and ITV.com as the show celebrated 50 years on air. Facebook is increasingly also the first choice for TV show promotion. ITV debuted this year’s promo video for The X Factor on the show’s The BBC has also commissioned season three of its EastEnders derived teen Web drama E20.

FOXTEL’s FOX8 will air multiplatform drama Slide in 2011. The 10 x 60 minute series is budgeted at more than $1m per episode and follows five Brisbane teens as they “smash their way into Adulthood.” The 2010 I Love Food Awards run by LifeStyle FOOD channel received 100,000 online votes from the public across 26 dining categories. Votes were compiled into Australia's largest people's choice Eat Out Guide. New TV services on iPad and mobile STV operators and broadcasters are launching innovative new services on the iPad, other tablet PCs and mobile devices. FOXTEL has launched its TV Guide on the iPad. The free app lets users search program listings, set program reminders and remote record shows to the FOXTEL iQ set-top box. Since its December 2009 iPhone debut, the app has been downloaded 200,000 times. Seven of the top 10 US STV providers are building tablet apps offering subscribers TV shows and movies. Satellite operator DirecTV plans to offer NFL games on iPad for $50 on top of the $300 season TV subscription.

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Rival DISH Network will let subscribers view DVR recordings on iPad. Broadband and IPTV provider Verizon has prototyped a live TV service for iPad and other mobile devices. Australian audiences are being offered multiplatform original Australian made programming via subscription television. Provider Verizon has prototyped a live TV service for iPad and other mobile devices. The HBO Go service will provide 800 hours of programming to subscribers’ iPads, at no extra cost. Other broadcasters are launching apps that work in sync with live TV: the CBS sports app brings real-time American football stats to iPads The Samsung Galaxy tablet will compete with the iPad/iTunes offering. It will have TV shows and movies from NBC, Universal, MTV, Paramount and Warners.

Original content is key This importance of content has been highlighted throughout this report. Local production of content is well supported by Australian subscription platforms and channels, which invested over $541m in Australian content in 2009. Spirited, the comedy-drama about life and love after death, became the #1 and #3 time-shifted show on W. A second season has been commissioned for next year. 2011 will also see the premiere on Showcase of more locally-produced drama, with Cloudstreet. The mini-series of Tim Winton’s iconic novel is shot in Perth and stars Stephen Curry and Essie Davies.

Advertising Research indicates a positive outlook for the international advertising market and Australian TV advertising in 2011. Worldwide ad spend growing

• Nielsen research found worldwide ad spend

continues to rise in first half 2010 • It grew globally year-on-year 12.8%, in the

USA 3.8% and in Australia 8% • Globally, television grew 15.8% and remains

the main ad medium with 62% share of total global ad spend, a 1% increase

Australian TV 2011 ad growth

• Media buyer Mitchell Communication Group predicts the FTA ad market will grow 6% and TV ad rates rise by 5%

• Mediabrands predicts the combined FTA and STV market will grow 4.3%

Online measurement

• The Interactive Advertising Bureau (IAB) is

tendering for a new online media audience measurement system

• The initiative is supported by a media research group formed by major Australian advertisers to improve media measurement

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Definitions and Stats Essential terminology and need-to-know data. Key terms ARPU: Average revenue per user Cord-cutting: US cable TV subscribers cancelling subscriptions (sometimes preferring online or connected TV video) Media stacking: simultaneous use of multiple electronic media (eg watching TV and using the Internet)

Over-the-top (OTT) video: TV shows and movies delivered to homes via broadband Internet instead of STV Quad play: Voice, video, broadband, wireless Triple play: Voice, video and broadband TV Everywhere: initiatives to enable STV subscribers to view programming via a range ofdevices, such as PCs, game consoles and Internet-connected TVs

TV viewership and technology trends Australia – primetime viewing in mainland capitals • OzTAM people meters: total viewing of

prime time TV: up 3% on 2009. • Viewing by 16-to-39s up 7%. • However, viewing of main FTAs (ABC, SBS,

Seven, Nine, TEN) down 6% as viewers migrate to new FTA digital channels.

• STV up 1% and for viewers 16-39 up 11%. Media stacking prevalent amongst younger UK viewers • Survey of 2,000 UK consumers

commissioned by social media agency Diffusion.

• "Media stacking" is prevalent among 18-24s, with 76% responding that they "regularly" browse the Internet while watching TV.

• 58% use online or mobile services while watching TV programmes.

• 40% of women and 29% of men ages 18-24 mostly use social networking sites such as Twitter and Facebook while watching TV.

US 18-34s keep moving to online and time-shifted video • Market researcher Morpace: Viewing by

American 18-34s continues moving from broadcast television towards online and time-shifted video.

• Only 41% of their viewing time is spent watching live TV versus time-shifted and online content.

Inability to multitask is a barrier to 3DTV • CTAM study of viewers finds that 89%

believe multitasking is best suited for regular, non-3D viewing.

Web-to-TV video content revenue will reach $17bn in 2014 • In-Stat forecasts 57m US homes will be

viewing full-length online content on their TVs in 2014, with associated revenue reaching $17bn.

Apple TV has only three of the top 25 US TV shows • At launch, Apple TV offers just three of the

top 25 broadcast TV shows (Desperate Housewives, Glee and Grey’s Anatomy).

Apple iPad now in 3.6% of US homes • The Q2 2010 Nielsen Home Technology

Report finds fast penetration for the iPad, which launched on April 3, 2010 and was added to the Report’s survey in May.

TV set is no longer a “necessity” for US consumers • 2010 Pew study finds only 42% of

Americans believe a television set is a "necessity," down from 64% in 2006.

Digital replaces analogue in UK homes • Institution of Engineering and Technology

survey: A typical British home has six web-enabled devices, compared to one in 2000. Vinyl, film and video tape are all dying out.