Nuevas tendencias de la industria by Comisión Regulación Comunicaciones

VII TALLER INTERNACIONAL – TELEVISION EN AMBIENTE DE CONVERGENCIA: RETOS DE LA INDUSTRIA

Nuevas tendencias de la industria – experiencia europea 3 septiembre 2012 • Lluís Borrell

21212-446

Agenda

Agenda  Context – current situation in Colombia  Historic trends – some perspectives on key structural, cyclical and regulatory changes  Future challenges from connected TV – some perspectives on future changes, uncertainties and scenarios

21212-446

Context

Colombia – some initial considerations Overview

Key regulatory issues

 Strong pay TV market with over 80% penetration in 2011

 Definition of new regulatory framework

 mainly satellite (Direct TV, Telefonica) followed by cable  in 2008, pay TV revenues overtook TV advertising revenues  Five main FTA national TV channels  2 private (Caracol, RCN)  3 public (Uno, Institucional, Señal Colombia)  Significant regional (8) and local (46) TV channels

21212-446

 Definition of markets requiring ex-ante regulation  Conditions for infrastructure use by public and private TV channels  Competition policy  DTT transition and DSO  Connected TV and convergent TV regulation

Trends

Factors changing the European broadcasting STRUCTURAL Changing consumer patterns and a more competitive landscape?

 Digital (DTT/DSO) – multiplication of offerings (diversity) and fragmentation  Enhanced TV quality – move towards HD and 3D TV  Explosion of connected TV & new devices – offering and adoption  Lower barriers to entry – a shift of power in the value chain

CYCLICAL Weaker underlying fundamentals?

 Advertising – Advertising downturn  PSB – Pressure on public financing for PSBs  Pay TV – growing but weaker consumer spending

REGULATORY AND PUBLIC POLICY Lighter-touch ‘competition law’ and new ‘targets’ of regulation?

 Advertising bans on national PSBs: imposed on Spanish PSB (complete) and French PSB (partial)  Advertising limits: higher for commercial thematic channels (France) and debate on asymmetric rules (UK, Ireland, etc.)  Greater focus on competition law – general guidelines to focus on economic ex-post rather than ex-ante  Pay-TV competition rules – action on key bottlenecks like righs and retransmission consent (UK, France)  Public policy – ex-ante vs ex-post

21212-446

Trends

Selected trends in the evolution from connected TV to coherent media Trends – providing some perspective  Exponential growth of connected TV … and resilience of linear TV  Terrestrial and DTT/DSO – varies by country proliferation of TV channels fragmentation of audiences  Pressure on peformance of PSBs and commercial TV channels  Continuing growth of pay TV  Increased competition among TV channels  TV channels adjusting to unfavourable market environment  PSB retains a major role in local and European production

21212-446

TV consumer changes – non-linear TV

The number of non-linear TV services is growing, as are the associated revenues …

33%

15%

54%

167%

60%

VoD and NVoD consumer revenues in the EU (2005–9)

30%

EUR million

20 15 10 5 0

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

200% 150% 100% 50% 0% -50% 2005 2006 2007 2008 2009 Connected TV

2006 2009: Operators 2009: Broadcasters

2009: Internet content 2009: Others

NVoD + PVR Growth NVoD + PVR Growth in connected TV

New VoD services grew by 15–167% from 2006–9; connected TV grew the fastest (>50% per annum), albeit from a very low base 21212-446

Sources: comScore Media Matrix, EAO, Analysys Mason

Growth rate

Growth in number of VoD service providers (2006–9)

TV consumer changes – linear TV

… but consumption of traditional linear TV has also increased and remains strong Average television viewing per person in Europe (2001–10) 300 18.8%

250 7.5%

8% 12.5%

16.2%

11.3%

200 7%

31.8%

Austria

Denmark

12.1%

150 100 50 0 2001

21212-446

2002

France 2003

Germany 2004

2005

Italy 2006

Poland 2007

Spain 2008

Sweden 2009

In most countries linear viewing rose by between 7% andEuropean 32% over the last decade Source: Audiovisual Observatory

2010

TV consumer changes – linear and non-linear TV

5% 4%

200

150 2%

100 50

100

0% 2005 2006 2007 2008 2009 VoD online + SVOD

TV consumption

Pay TV

Online video consumption

Broadcasters’ net revenues (ads etc.)

Online video vs TV consumption

VoD vs traditional TV

Despite exponential growth, online minutes of video viewing still make up less than 4% of linear TV minutes. In terms of revenues, non-linear represents lessMason, thancomScore, 1% of European linear TV revenues Sources: Analysys Audiovisual Observatory 21212-446

VoD vs traditional TV

250

Traditional TV vs. connected TV revenues in the EU (2005–9)

EUR billion

300

Consumption of online video vs. TV (2010)

Online vs TV consumption

Minutes per viewer per day

Despite rapid adoption of connected TV, this seems to have had only limited impact overall

DTT/DSO changes

DTT/DSO has been a major driver of change in Europe, with marked variations Household terrestrial penetration in selected European countries (2009)

Data not collected <30% terrestrial penetration 30%â&#x20AC;&#x201C;60% terrestrial penetration >60% terrestrial penetration

Progress of digital switch-over (DSO) in Europe

DSO not formally launched Some DTT services launched Analogue switch off (ASO) underway ASO complete

Terrestrial remains the most important TV distribution platform in the EU (mainly due to the UK, France, Spain and Italy), but DTT/DSO has had a significant effect on the structure of the TV market 21212-446

Source: DigiTAG, Ofcom, Analysys Mason

Proliferation of linear TV channels

The proliferation of linear TV channels has been significant across Europe Growth of TV channels in selected European countries (2008â&#x20AC;&#x201C;10)

1200

13%

90%

45%

19%

386%

83%

12%

23%

1000 800 600 400 200 0

2008

2009

2010

The DTT/DSO, and digitalisation in general, has brought a proliferation of channels in most markets â&#x20AC;&#x201C; Germany, Sweden and Austria seem an exception 21212-446

Source: European Audiovisual Observatory (EAO)

PSBs – viewing and revenues

The linear TV viewing share of PSBs has fallen, especially in countries with high DTT penetration 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

80%

-8.6pp -13.7pp

-11.8pp

-10pp

70%

-6.4pp

60%

-13.6pp

50% 40% -1pp

30% 20%

Low DTT penetration

DTT penetration

TV market share

Evolution of TV viewing share of PSBs in selected European countries (2001–10)

10% 0%

2001 May 2001 May 2001 2010 2001 May 2001 2010 2001 2010 2001 2010 2011 2011 2011 RTVE

BBC Historical

RAI

FT New channels

SVT

TV2

ZDF

DTT penetration

DTT/DSO has cut the share of major PSB channels by 6–14 percentage points, reducing their perceived impact – but will this affect their future on connected TV? 21212-446

Source: EAO, Analysys Mason

Commercial TV – viewing and revenues

Historical commercial channels have suffered similar erosion where DTT penetration is high … Evolution of TV viewing share of historical commercial channels (2001–10) 50%

80%

45%

-8.1pp

70% 60%

35%

-9.1pp

30%

-8.3pp

-11.6pp

+0.6pp

25% 20%

40% -8.7pp

30%

15%

20%

10%

Low DTT penetration

10% 0%

0% 2001 2010 2001 May 2001 2010 2001 May 2001 2010 2001 2010 2011 2011 A3

ITV

Reti Televisive Italiane

Historical 21212-446

50%

Source: EAO

TF1

New channels

TV4

DTT penetration

RTL

DTT penetration

TV market share

40%

Commercial TV – viewing and revenues

… which is putting pressure on their finances

EUR million

Evolution of operating revenues for Europe’s major commercial TV groups, at 2005 prices (2001–10) -35%

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

-45%

A3 2001

2002

ITV 2003

2004

2005

-14%

-21%

Revenue growth, -21% 2006–10

TF1

TV4

RTL

2006

2007

2008

2009

2010

Cuts in operating revenue could affect the scale and timing of investment in connected TV by commercial TV channels 21212-446

Source: EAO, EIU, Analysys Mason. Excludes Mediaset, whose revenues include many other elements

Pay TV

Pay TV has benefited from strong growth, but this has now slowed 160

140

120

100 80

40 20

0% 2008

2009

2010

2011

Evolution of pay-TV revenues in Europe (2005–9)

12%

10%

20 6% 15 4%

10 5

0% 2005 2006 2007 2008 2009

Cable

IPTV

Cable

Satellite

DTT

Satellite

IPTV

DTT

Pay TV growth

Pay-TV channels and operators seem to be in a better economic position to invest in connected TV 21212-446

Source: EAO, Analysys Mason Research

Pay TV growth

7% Pay-TV revenues (EUR billion)

180

Growth in households

Millions of households

Evolution of pay-TV subscribers in Europe (2008–11)

Challenges

Selected challenges in the evolution from connected TV to coherent media Challenges – short or long term?  Mass-market connected TV may up to 30Mbit/s broadband  Networks need developing (current connectivity and the Digital Agenda)  Uncertainty about monetising connected TV – small for incumbents but significant for new entrants  The new battle of the value chain – broadcasters/pay-TV platforms adapting to a new ecosystem  Final direction of public policy debate – advertising, premium TV rights and exclusivities, support for production  Looking into the ‘crystal ball’ – there are many views about the scale and speed of connected TV 21212-446

Broadband requirement for Connected TV

6–25Mbit/s broadband might be sufficient for mass-market connected TV, including HDTV Required broadband connection speeds, based on multi-usage and quality of service Speed per type of service format

No. of simultaneous flows per HH

Example of service format

21212-446

Audio

Music

SD TV

HD TV

3D TV / online game

Few kbit/s

320kbit/s

1–2 Mbit/s

6–8 Mbit/s

12–16 Mbit/s

Few kbit/s

640kbit/s

2–4 Mbit/s

12–16 Mbit/s

24–32 Mbit/s

Few kbit/s

960kbit/s

3–6 Mbit/s

18–24 Mbit/s

36–48 Mbit/s

Few kbit/s

1280kbit/s

4–8 Mbit/s

24–32 Mbit/s

48–64 Mbit/s

Few kbit/s

1600kbit/s

5–10 Mbit/s

30–40 Mbit/s

60–80 Mbit/s

Few kbit/s

1920kbit/s

6–12 Mbit/s

36–48 Mbit/s

72–96 Mbit/s

ADSL sufficient

ADSL sufficient for a large proportion of HHs

Fibre or DOCSIS 3.0 required

Broadband situation

Broadband penetration has risen rapidly in Europe between 2005 and 2011 â&#x20AC;Ś Broadband penetration in Europe (Dec. 2005)

HH broadband penetration below 40% HH broadband penetration between 40% and 60%

Broadband penetration in Europe (June 2011)

HH broadband penetration between 60% and 80% HH broadband penetration above 80%

With broadband penetration of >60% of HHs in most countries, the EU seems prepared for mass-market connected TV â&#x20AC;&#x201C; but the quality of the experience needs more detailed assessment 21212-446

Source: TeleGeography, Analysys Mason

Broadband evolution

… but mass-market connected TV will require an improvement in the average speeds achieved Average downlink speed in Europe (2011)

 Digital Europe plans are essential to ensure the mass-market take-up of connected TV  The EC’s Digital Agenda for Europe aims to achieve the following objectives:  100% broadband penetration in 2013  network speed above 30Mbit/s in 2020  50% of households to have access to superfast broadband (100Mbit/s) in 2020  These targets would allow for most connected TV applications  However, many analysts view the 2020 targets as ambitious and complex to achieve Average speed below 6Mbit/s Average speed between 6Mbit/s and 12Mbit/s Average speed between 12Mbit/s and 18Mbit/s Average speed above 18Mbit/s

Sweden, Netherlands and Switzerland seem prepared for mass-market connected TV. Other countries are just at the low end of the requirements, but the 30Mbit/s Digital Agenda target suggests there could be a mass market for connected TV by 2020 21212-446

Source: Speedtest.net

TV consumer changes – linear and non-linear TV

Vendors forecast an explosion of video traffic, suggesting significant consumer adoption … Internet video traffic in Europe (2010–15)

10000 9000 8000

Central and Eastern Europe Western Europe

PB per month

7000 6000

 Internet video-to-TV traffic will increase 14-fold in Western Europe and 24-fold in Eastern Europe between 2010 and 2015  In the UK, consumption of video delivered through the Internet to a video screen will rise from 8% of total Internet video traffic in 2010 to 14% in 2015  In Germany, Internet video will account for more than half of all Internet consumption by 2013

5000 4000 3000

 In France, 67% of broadband connections will exceed 10Mbit/s in 2015, up from 36% today

2000

 The average broadband speed in Central and Eastern Europe in 2015 will be 20Mbit/s

1000 0 2010 2011 2012 2013 2014 2015

With a 58% CAGR over five years, this forecast would support moreaggressive and disruptive developments in connected TV 21212-446

Source: Cisco VNI Forecasts 2011

TV consumer changes – linear and non-linear TV

… but some analysts suggest more moderate advertising revenues from non-linear TV … Revenues from online TV advertising and mobile TV as share of total TV advertising revenues in selected EU countries (2009 and 2014) 7% 6% 5% 4% 3% 2% 1% 0%

2009 2014

Similarly, advertising connected TV revenues might be only between 2% and 6% of total TV advertising by 2014. However, online and mobile TV advertising are forecast to account for approximately 30% of incremental revenues from TV advertising in Europe over 2009–2014 21212-446

Source: PwC, Analysys Mason

Connected TV and pay TV

… and even more moderate forecasts for paid-for OTT

Over-the-top services Satellite

20 1%

10 0

0% 2011 2012 2013 2014 2015 2016

Connected TV vs pay TV

Pay-TV service revenues in Europe (2011–16)

EUR billion

Household penetration of primary services by platform, Europe (2011 and 2016) 70% 60% 50% 40% 30% 20% 10% 0% EuropeEurope WE WE CEE CEE 2011 2016 2011 2016 2011 2016

Over-the-top services Pay analogue terrestrial Satellite

Pay DTT

IPTV

Digital cable Analogue cable

Cable Connected TV vs traditional pay TV

Paid connected TV (OTT) revenues are forecast to be marginal or less than 3% of pay-TV revenues by 2016 – but they might be sizeable for new entrants 21212-446

Source: Analysys Mason Research

OTT and connected TV services

Connected TV and OTT video market is challenging traditional market players Principal paths for video consumption DVD

Traditional TV

Over the top

OTT providers can compete without capex… 21212-446

… but create significant traffic for ISPs…

VoD bypass

… while allowing device providers a greater role in the value chain

OTT and connected TV services

There are significant changes across the value chain by both incumbents and new players Incumbent s Rights owners / Content originators

New entrants and internet players

User generated content

Content aggregators Retail platform provider s Network operators

Vendors and manufacturers

21212-446

Source: Analysys Mason

Integration

Deal

Bypass

Illustrative – for discussion only 24

Looking at the “Crystal ball” - Connected TV to Coherent TV

250

Scenario 1 - Online video is complementary to traditional TV

Consumption of online video vs TV (min)

Coherent TV consumption – will connected TV and linear TV be complementary or substitution?

200

150

100

200

150

100

TV 21212-446

250

Scenario 2 - Online video as a substitute of traditional TV

Online Video

Illustrative – for discussion only Looking at the “Crystal ball” - Connected TV to Coherent TV

In terms of revenues, will connected TV develop into a mainstream TV model comparable to FTA or payTV? Scenarios in 2020

Connected TV

PSB + Commercial TV

Pay TV

Scenario 1

Lower growth (CAGR 30%)

Historical trend

Medium growth (CAGR 40%)

Connected TV mainly FTA Lower growth

Historical trend

Higher growth (CAGR 50%)

Connected TV mainly FTA Lowest growth

Historical trend Erosion from connected TV

Higher growth (CAGR 50%)

Connected TV strong FTA Lower growth

Connected TV strong pay Lowest Pay TV revenues

Scenario 2

Scenario 3

Scenario 4

EUR billions

Scenarios of TV revenue growth in Europe (2020)

140 120 100 80 60 40 20 0

VoD online + SVOD Pay TV Broadcasters net revenues (ads…) 21212-446

Questions?

Colombia – lessons/some questions? For debate  FTA vs pay TV market definitions – asymmetries of regulation  Linear vs non-linear market definitions  The role pay TV on DTT /DSO  Debate on terrestrial infrastructure  Competition across the pay TV value chain  Any rights issues  Any retransmission consent issues  Limited regulatory action on OTT/connected TV?  Minor protection  Rights?

21212-446

Contact details Lluís Borrell Partner lluis.borrell@analysysmason.com Analysys Mason José Abascal 44 4° 28003 Madrid, Spain Tel: +34 91 399 5016 Fax: +34 91 451 8071 www.analysysmason.com

21212-446