The impact of TV 2.0 on viewing behaviour Some early data, and a hypothesis

Julian Dickens, 3 Reasons LtdPrepared for: London Business School, 7th July 2009

© 3 Reasons Ltd 2009

3 Reasons Ltd © 2009 23 Reasons Ltd © 20093 Reasons Ltd © 2009

Integrated PVRs

UK penetration of TV 2.0 services at year-end 2008 – primary vs. secondary sets

Most secondary set PVRs are DTT devices, although they are found in both FTA and pay homes

VOD capability

We believe that most secondary set VOD is accounted for by cable multiroom subs

HDTV

And we see very few HD-live secondary sets; such as there are will be Sky subscribers

To date, TV 2.0 is an overwhelmingly primary set phenomenon

We believe that this disparity between primary and secondary set capabilities will continue, and that it may be driving changes in viewing behaviour

25.1%

2.6%

0%

10%

20%

30%

40%

50%

Primary set Secondary set

30.3%

2.5%

0%

10%

20%

30%

40%

50%

Primary set Secondary set

5.0%

0.1%0%

10%

20%

30%

40%

50%

Primary set Secondary set

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The digital secondary set universe is predominantly FTA, and is likely to remain that way – unless, for instance, Sky bundles multiroom into its pay TV 2.0 tier

Sets(m)

Projected digital secondary sets by pay/free(year-end, UK only, unduplicated)

3.2 3.5 3.7 3.9 4.1 4.3 4.5

20.522.7

24.425.8

26.8 27.4 28.0 28.5 28.9 29.3

2.92.62.32.0

17.7

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pay (Sky/cable multiroom; Top Up/Setanta secondary-set subs) FTA (DTT; Sky/cable auto-connectors)

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So we suspect that the quality of the overall viewing experience on secondary sets has deteriorated relative to primary sets, and will take many years to catch up

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As discussed, digital penetration of secondary sets has increased rapidly in recent years

But this does not necessarily mean that the perceived quality of the viewing experience offered by secondary sets has been catching up with that offered by primary sets

For not only are primary sets themselves typically newer and – thus – of a higher specification…− LCD/plasma widescreen/flat screen vs. CRT

…but they are bigger, even when the second set is a flatscreen – as some are

And, as we have seen, there has opened up a significant gap in the availability of TV 2.0 services between primary and secondary sets, particularly over the past two years− With 2.0 timeshifting making the bigger, primary screen more accessible for all

We suspect that this renewed gap between primary and secondary set quality might be reflected in viewing dynamics

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Although overall television viewing has recently been increasing – (and many expect the recession to lift viewing further in 2009)…

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Mins

Average TV viewing time by UK adults per day – by platform

This shows BARB measurement of consolidated viewing, including all PVR and cable VOD time-shifted programming played back within seven days of original broadcast

242

246 246

235 235

241

226225

236

222220

232232233

240

200

220

240

260

2006 2007 2008

All homes DSat homes DCab homes DTT homes Analogue terrestrial homes

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…this growth has been focused on the primary set

Mins

Average UK primary-set TV viewing time per day – by demographic

121.3128.5

177.2

227.3

125.7131.2

185.8

235.5

119.7

130.7

178.1

223.3

0

50

100

150

200

250

Children Adults 16-24 Adults 25-34 Adults 35+

2006 2007 2008

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And since the amount of viewing on secondary sets has been pretty flat for most demographics, the share of secondary set viewing has thus fallen – in all types of home

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Share of all UK adult TV viewing delivered by secondary sets – by platform

12.7%

12.0%

11.7%

10.5%

13.2%

12.0%

11.5%

11.3%

11.8%

12.3%

11.3%

13.0%

10%

11%

12%

13%

14%

15%

2006 2007 2008

All homes DSat homes DCab homes DTT homes

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A hypothesis: there are probably two factors at play here

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First, TV 2.0 features (especially the ability to avoid schedule clashes) and big primary-set screens are driving increased overall viewing on the main set

Secondly, younger audiences – which historically had a higher share of secondary-set viewing than any other demographic – are going elsewhere

Thus the proportional decline in viewing on secondary sets has been especially pronounced amongst 16-24s and, to a lesser extent, 25-34s− The secondary set contribution has declined by c.25% for 16-24s between 2006 and 2008− And by 16% for the latter− While remaining much more stable for children, and for adults aged 35+

This suggests that teens/young adults who may previously have been watching much of their TV on bedroom sets have now switched some of their viewing− Either to the main – bigger and better – set; 16-24 main set viewing was up in 2008− And/or to the PC, including on-demand services

And this in turn suggests that TV 2.0 on the secondary set offers the prospect of recovering some TV viewing in an important demographic (albeit on-demand)