Multichannel summary

Multichannel cable trends VIDEO Trends 1. OTT (over the top video) Trend : OTT will contribute to multichannel video market expansion. New video packages may attract new segments of subscribers. TV Everywhere model could make a difference. Satellite has highest erosion risk since it has no HSD, unless reselling Internet. OTT subs expected to rise from virtually zero today to 8.5mln by 2016 (6.9%of HHs) and 27.3mln in 2020 (21.3% of HHs). 5 year outlook (2016) DVR sub forecast to 60.7mln HHs by year-end 2016, up from 36.7mln as of the end of 2Q10. VOD, including OTT services, will reach 70.3mln up from 50.1mln in 2Q10. 99.3mln HHs to be online in 2016 (98.3mln with broadband). Drivers: Cost-cutting is NOT a driver of the OTT technology. Higher-incomes homes will rely on OTT instead ofconventional multichannel services because of the fast (and more expensive) broadband services required. Assumes consumers care about high resolution video from their primary viewing experiences and most households want the option to view more than one TV set at the same time. Cost-conscious households will access OTT through lower resolution—and thus complementary—video services over today’sweb-based libraries and those who are willing to go with a low-resolution service with only 1 stream in a home at a time are most likely non-pay TV subs already. Source : ad agency research firm MagnaGlobal, Oct 26, 2010 OTT Update from SNL Kagan, November 17, 2010 2010 numbers: Cable, DBS and telco video offerings, the U.S. multichannel segment fell by 119,000 customers in the third quarter of 2010,compared to a 346,000 gain reported in third-quarter 2009. Second quarter of losses (Q2 loss = 216,000). Comcast and TW deny sub loss. SNL Kagan estimates U.S. cable operators lost 741,000 basic video customers in thirdquarter 2010, marking the single largest quarterly dip for cable since SNL Kagan began compiling data for the segment in 1980. Cable MSO's share of combined video subscribers continuesto slide, dropping to 60.3%, versus 62.9% in third-quarter 2009. Telco and DBS are increasing market share. The decline in customers reflected the weak economy. Hurt television industry, which depends on fees collected by distributors. Until recently, the steady upward march of pay television was supported by population growth and the popularity of TV. Now, many people cancel cable and cobbletogether a low-cost diet of TV via the Internet. Ian Olgeirson, a senior analyst at SNL Kagan, said in a statement on Wednesday that cable and satellite companies were “pointing to a continuation of the forces that pushed subscriber gains into negative territory in the second quarter, including the weak

economy, high unemployment and elevated churn of former over-the-air households.” However, headded, it is “becoming increasingly difficult to dismiss the impact of over-the-top substitution on video subscriber performance.” Also the End of Promotions: Some customers abandoned their pay-TV subscription when promotional offerings ended after the government-mandated switch from analog service. The companies said the cost to keep those customers at the lower promotional rates was too great.Despite the overall weakening in multichannel subscription trends, the telco TV industry remains on a growth trajectory, adding 476,000 customers in the third quarter. Although still a modest 6.4%, telco market share is steadily rising, up from 4.7% in third-quarter 2009. The DBS industry, which added 145,000 subscribers in the third quarter, is expanding its market share slightly, up less than 1%over the past year to 33.2%. The third-quarter multichannel market drop-off marks the second consecutive quarter of video subscriber declines. The multichannel market declined for the first time in history when it lost 216,000 customers in the second quarter of 2010. In the past two quarters combined, the segment has fallen 2.3% to just more than 100 million subscriptions, not eliminating...