Small Change, Big Impact

Jeremy Pounder, Mindshare

5th November 2010, European TV Symposium

The ‘end of linear TV’ is a tale long foretold

‘By the year 2000, you’re going to have a very hard time telling me whether your TV set is a computer or a TV’

Nicholas Negroponte, Founder of MIT MediaLab 1989

‘Once you have Google television, you’re going to be very busy, it’s going to ruin

your evening’

Eric SchmidtGoogle CEO, 2010

Linear TV will be more resilient than many anticipate

75% of TV viewing in the UK will still be

linear in

2020

Around

1. Choice is very hard to manage

TV viewers manage choice through channel brands & the schedule

Source: BARB; *top 10% by frequency

53% of viewers spend 95%+ of their viewing on<10

channels

32%of viewers change

channels <5 times in an evening

66% of heavy channel

changers* spend 95%+ of their viewing on<10

channels

2) The enduring allure of New!

Viewers stick to linear TV even after many years of PVR use

Sky + timeshifted viewing by years of ownership (%)

Source: SkyView

1717161615

0

10

20

30

40

50

60

70

80

90

100

5+4321

% timeshifted viewing

No Years of Ownership

Linear will still dominate, though VOD will drive non-linear growth

Linear

PVR timeshiftVOD

2020 (f)

75%

10%

15%

2010

92%

6%2%

Estimated share of TV viewing by type (%) 2010-2020 (f)

Source: BARB / Comscore / Mindshare estimates (includes longform online video eg iplayer)

Estimated share of viewing by age (%) 2020(f)

Source: BARB / Mindshare estimates

Timeshifted

Linear

55+

15%

85%

45-54

25%

75%

35-44

35%

65%

25-34

40%

60%

16-24

45%

55%

Adults

25%

75%

But, non-linear viewing will most likely skew young and upmarket

Putting a disproportionate amount of ad revenue at risk

28%16-3419%

16-34

Total Viewing (%) Ad Rev (%)

Up to 15% of TV ad revenue at

risk

Source: BARB / Group M estimates

On-demand viewing is one challenge amongst many for TV advertising

Migration of key audiences to on-demand

+

Ongoing growth of pay

Structural change (search)

Weak economic environment

‘Other’ revenue streams (eg merchandising)

Increasing pressure over next 5-10 years…

Advertising’s share of TV revenue will be significantly smaller

100%

Subscriptions

Advertising

Public Funds (BBC)

Other

2020 (f)

17

50%

23%

17%

10%

2009

11

41%

28%

24%

6%

Source: Ofcom / Mindshare estimates

TV industry revenue £bn, nominal terms 2009 -2020 (f)

Advertisers

Talent

Rights Holder

Content Production Channel

Device

IP Delivery Network(eg BT)

Consumer

TV Delivery Network (eg Sky)

Content Aggregator

(eg Sony, Apple)

As a result, advertisers will become increasingly involved across the value chain

Content Production Packaging Delivery Consumption

Advertising will split into three broad types

100%

Subscriptions

Advertising

Public Funds (BBC)

Other

2020 (f)

17

50%

23%

17%

10%

2009

11

41%

28%

24%

6%

Source: Ofcom / Mindshare estimates

TV industry revenue £bn, nominal terms 2009 -2020 (f)

Addressable

Content

Spot

35%

15%

50%

Linear spot advertising

Content

Addressable advertising

Linear spot advertising

Content

Addressable advertising

Linear spot advertising will increasingly become the preserve of mass market categories

3%

2010

12%

4%

10%

18%

9%

11%

26%

6%

28%

12%

2%

6%

10%

Retail 13%

2020 (est)

Misc

Finance

Ent & Media

Food & Drink

ToiletriesHousehold Stores

Motors

31%

+15%

Potential Linear Spot Advertising Share by Category 2010 – 2020 (est)

Source: NMR / Mindshare estimates

Trading innovation & relaxation of regulation will help maintain spot revenues

Minutage flexibility

Fixed peak pricing

Auction based pricing

Help maintain yield & Total Revenue

Linear spot advertising

Content

Addressable advertising

Content funding will grow but within limits

Challenges

Transaction costs

Suitability (genre / advertiser)

Risk for advertiser

Demonstration of ROI

Linear spot advertising

Content

Addressable advertising

TV Platform Ad Server(eg Sky AdSmart)

Platform owned data

3rd Party integrated

data

Eg Experian

Eg DemographicsViewing habitsStated preferences

C4 (VOD / Linear)

Car insurance up for renewal

Home insurance up for renewal

C4 (VOD / Linear)

Pre roll / linear break

Pre roll / linear break

Price comparison site Home execution

Price comparison site Car execution

Addressable advertising is perhaps the biggest opportunity

Heavily focused on categories with high value customers

Misc

10%

4%

9%

18%

34%

13%

Ent & Media

Retail

Household Stores

Toiletries

Food & Drink

2020 (est)

31% 27%

5%

Finance

Motors

5%2%7%

7%

2010

12%

10%

6%

+31%

Potential Advertising Share by Category 2010 – 2020 (est)

Linear Spot Advertising

Addressable Advertising

Source: NMR / Mindshare estimates

But some fundamental challenges lie along the way

Creative

Data AnalysisTrading

Linear spot advertising

Content

Addressable advertising

Plus ça change…