Linear TV brands will continue to prosper as viewers still spend over 4 hours per day watching live TV. Strong channel brands will gain importance in navigating growing on-demand content. Social media will fuel blockbuster shows by driving 'social TV' discussions and communities. Pay TV subscriptions will reshape the industry as the dominant revenue source, making popular content more valuable for subscriber acquisition. The TV ad model will change slowly, with addressable advertising opportunities emerging but implementation challenges constraining growth.

1. THE
FUTURE
OF TV
1

2. Sir Martin Sorrell Peter Bazelgette Claire Enders
We’ve talked to a Mark Thompson David Elstein Daniel Ek
lot of people…
Alan Yentob Steve Ballmer Mathew Horsman
Troy Esther Dyson James Surowiecki
2

3. > 4 trends shaping the UK TV market
Strong linear Social media
TV brands will will fuel the
prosper blockbuster.
Pay will re- The TV ad
shape the TV model will
industry change – but
slowly.
3

4. > 4 trends shaping the UK TV market
Strong linear Social media
TV brands will will fuel the
prosper blockbuster.
Pay will re- The TV ad
shape the TV model will
industry change – but
slowly.
4

5. > Strong linear TV brands will prosper
Time Use, 2010
TV
We love TV.
Over 4 hours a day
spent watching TV.
5

6. > Strong linear TV brands will prosper
TV viewing hasn’t changed over last 20 years.
In fact, hours viewing has increased over the last couple of years.
6

7. > Strong linear TV brands will prosper
UK LAUNCH
No of years to reach 50% penetration
Mobiles
But the pace of 1986
1988 MultichannelTV
15
14
Traditional AV
technological 1975
1923
VCRs
Radio 12
14
adoption has 1986 CD Players 12
1967 Colour TV 10
quickened 2002 3G 10
2001 DAB 10
2001 DTRs 9
2001 HDTV 9 Digital AV
2000 Broadband 7
1998
Digital TV 7
1997
DVDs 6
1999 Audio on PC 6
2005 TV on PC 4 Web content
2006 Social Media 4
Source: O&O

8. > Strong linear TV brands will prosper
Sky + timeshifted viewing by years We have over-
of ownership (%)
estimated our appetite
% timeshifted viewing
30
for new ways of
25 watching TV (self-
20
16 16 17 17 scheduling)…
15
15
Sky+ usage is 15-20% on average –
10
significantly less than 30%+ that was
5 predicted. No evidence of greater
0 use over time.
1 2 3 4 5+
Number of Years of Sky+ Ownership
Source: SkyView
8

9. > Strong linear TV brands will prosper
… & the significance of
online video viewing
19 mins a day of online video, but
80%+ is porn + YouTube (UGC) -
neither of which is likely to become
mainstream.
56% of all online video viewing is porn
Source: Comscore
9

10. > Strong linear TV brands will prosper
Estimated video viewing by type
2010-2020 (f), minutes
281
259
40 Online Video
19
70% of video viewing 2 14 29 TV VOD 31%
will still be to linear TV 19 DTR timeshift
Non-linear viewing will nearly
treble to 90mins pd, but viewing to
Live 223
the linear schedule will remain 193
dominant.
2010 2020
Source: BARB / Comscore / Mindshare estimates
10

11. As content choice
increases, channel
brands’ navigation
role will be more
important

12. > Strong linear TV brands will prosper
Strong channel brands will gain share in a VoD world.
Distribution of revenue – traditional vs emerging media.
Revenue
‘The big head’
‘The Long Tail’
‘The sagging middle’
Top Bottom
12

13. > 4 trends shaping the UK TV market
Strong linear Social media
TV brands will will fuel the
prosper blockbuster.
Pay will re- The TV ad
shape the TV model will
industry change – but
slowly.
13

14. > Social media will fuel the blockbuster
Blockbuster content has held TV Viewing Figures by rank (% change 2000 – 2010 )
up well in the digital era 0
UK
-5 US*
The top 5 programmes have lost fewer
-10
viewers over the past 10 years than the
rest of the top 100 -15
-20
-25
-30
-35
1-5 11- 21- 31- 41- 51- 61- 71- 81- 91-
15 25 35 45 55 65 75 85 95
Source: BARB / Nielsen
14 * 2001-09

15. > Social media will fuel the blockbuster
New forms of
access help Broadcaster player on device Online aggregator
maintain the
viewer-
programme
relationship
VOD & online TV platform player TV platform web player
video allow
additional
opportunities to
view Broadcaster site
Aggregator player on device
15

16. > Social media will fuel the blockbuster
Social media
‘chatter’ helps
big content get
bigger
16

17. > Social media will fuel the blockbuster
Second
screen
consumption
is the driver
of Social TV
17

18. Social
communities
provide ready
fanbase for
launching
content
18

19. > Social media will fuel the blockbuster
Social features
enhance the
viewer
experience to
sustain
viewing
19

20. > 4 trends shaping the UK TV market
Strong linear Social media
TV brands will will fuel the
prosper blockbuster.
Pay will re- The TV ad
shape the TV model will
industry change – but
slowly.
20

21. > Pay will re-shape the TV industry
TV Industry Revenue (£m)
2004-2010
Subscription is already 5000
Subscription
the dominant source 4000
of TV funding Advertising
3000
Subscription has risen by c6%pa+ BBC Licence Fee (TV)
over last five years, whereas
2000
advertising has fallen by c2%pa
1000
Other
0
2004 2005 2006 2007 2008 2009 2010
Source: Ofcom
21

22. > Pay will re-shape the TV industry
The value of a subscriber Sky Annual ARPU (£) 2006-2010
continues to grow… 541
550
8.2%
492
Added TV functionality (PVRs, HD etc) 500
444
and triple-play bundling have increased 450 421
the value of a subscriber. 394
400
350
300
250
2006 2007 2008 2009 2010
Source: BSkyB company reports, Dec year end
22

23. > Pay will re-shape the TV industry
…making content that Likelihood of subscribing to Pay TV if ITV’s
content migrated to Pay
drives penetration (% agreement, non-Pay HHs)
increasingly valuable ITV Digital
4 7 11
If moved to Pay, ITV’s content could
drive significant Pay penetration
All ITV 6 18 24
Much more likely More Likely
Source: GfK / BoA Merrill Lynch Global Research 2010
23

24. > Pay will re-shape the TV industry
Estimated Revenue mix for ITV Wholesale model
(£m, 2008-2015E)
Also offering more
diverse income for ITV 3,000
2,500
Other
Pay TV operators likely to pay 2,000
Content
strategic premium for ITV content 1,500 Subscription
1,000
ML estimate £200m pa revenue 500 Ad Revenues
upside by 2016 0
2008 2009 2010 2011 2012 2013 2014 2015
Source: GfK / BoA Merrill Lynch Global Research 2010
24

25. > Pay will re-shape the TV industry
The ‘ARPU hole’
will start to be Where is the pay-
lite TV model?
filled in
‘Over-the-top’ access through
connected TVs & YouView will
help growth of pay-lite
25

26. > 4 trends shaping the UK TV market
Strong linear Social media
TV brands will will fuel the
prosper blockbuster.
Pay will re- The TV ad
shape the TV model will
industry change – but
slowly.
26

27. > The TV ad model will change – but slowly
TV industry revenue £bn, real terms 2009 -2020 (f)
12 17 100
Other 6% 10%
Public Funds (BBC) 23% 17%
24% 80 Spot
Advertising 30%
Subscriptions 41% 49% Content
5
15 Addressable
2010 2020 (f) 2020(f)
The TV ad market Advertising will become a smaller source of revenue
for the TV industry. New advertising revenue
will evolve slowly streams will be constrained.
27

28. Advertisers will become increasingly involved
throughout the value chain

29. > The TV ad model will change – but slowly
Content funding will grow but within limits
Challenges
Transaction costs
Suitability (genre / advertiser)
Risk for advertiser
Demonstration of ROI

30. > The TV ad model will change – but slowly
Addressable advertising is the bigger opportunity
Price comparison site Car
execution
Platform Eg Demographics
Viewing habits Pre roll / ITV (VOD / Linear)
owned data linear break
Stated preferences
Car insurance up for renewal
Home insurance up for renewal
3rd Party Eg Experian
integrated data Pre roll / ITV (VOD / Linear)
linear break
Price comparison site Home
execution

31. > The TV ad model will change – but slowly But a combination of factors will
constrain the growth of addressable
advertising
Production Messaging
- Creating tailored TV content cost - Tailoring messaging across multiple
segments
efficiently Creative
- Speed of production - How explicit should understanding of
past behaviour be?
Implementation Targeting
- Market power of Data - Balancing mass reach with
platform owners Trading precision targeting
Analysis
- Integration of data - Ability to select targets &
across platforms messaging dynamically

32. > 4 trends shaping the UK TV market
Strong linear Social media
TV brands will will fuel the
prosper blockbuster.
Pay will re- The TV ad
shape the TV model will
industry change – but
slowly.
32

33. Thanks
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