Media and Entertainment: The Fight for Consumers Time and Money

Media and Entertainment: The Fight for Consumers Time and Money

Growth in media and entertainment EBITDA CAGR between 2006 and 2010 20% 15% 14% 10% 10% 10% 9% 7% 3% 0% -10% -1% -4% -5% Source: Ernst & Young report Spotlight on profitable growth Media & Entertainment, Volume III.

Profitability in media and entertainment Average EBITDA margin percentage between 2006 and 2010 40% 30% 38% 35% 31% 27% 20% 10% 20% 19% 18% 11% 11% 11% 0% Source: Ernst & Young report Spotlight on profitable growth Media & Entertainment, Volume III.

Growth in media and entertainment vs. stock indices EBITDA CAGR between 2006 and 2009 10% 5% 5% 0% -5% -10% -15% -20% -5% -5% -13% -14% -17% M&E* E&M* CAC 40 Nikkei S&P 500 DAX 30 FTSE 100 * The ten sectors of the media and entertainment industry measured by Ernst & Young consisting of cable operators, interactive media, cable networks, satellite television, publishing, conglomerates, television broadcast, film and television production, electronic games and music. Source: Ernst & Young report Spotlight on profitable growth Media & Entertainment, Volume III.

Profitability in media and entertainment vs. stock indices Average EBITDA margin percentage between 2006 and 2009 25% 23% 22% 22% 20% 15% 10% 17% 16% 13% 5% 0% M&E* E&M* S&P 500 FTSE 100 CAC 40 DAX 30 Nikkei * The ten sectors of the media and entertainment industry measured by Ernst & Young consisting of cable operators, interactive media, cable networks, satellite television, publishing, conglomerates, television broadcast, film and television production, electronic games and music. Source: Ernst & Young report Spotlight on profitable growth Media & Entertainment, Volume III.

Global TV subscriptions - market components Percentage CAGR 2011 to 2015 60% 50% 51.6% 40% 30% 20% 10% 0% -10% 25.1% 13.6% 7.6% -0.2% Over-the-top Mobile TV Video-on-demand Subscriptions Pay-per-view Source: PricewaterhouseCoopers LLP.

Global TV subscriptions - regional growth Percentage CAGR 2011 to 2015 14% 12% 10% 12.5% 12.1% 8% 6% 4% 2% 7.5% 5.8% 0% Latin America Asia Pacific EMEA North America Source: PricewaterhouseCoopers LLP.

Global TV advertising Percentage share by component 2010 and 2015 Multichannel, 27.9% 2010 Online, Mobile, 1.8% 0.4% Multichannel, 30.4% 2015 (projection) Online, Mobile, 3.6% 1.3% Terrestrial, 69.9% Terrestrial, 64.8% Source: PricewaterhouseCoopers LLP.

Global entertainment spending Digital vs. non-digital percentage change 2010 to 2015 2010 2015 (projection) 2015 Digital, 26% Digital, 34% Non-digital, 74% Non-digital, 66% Source: PricewaterhouseCoopers LLP.

Newspaper circulation growth worldwide Global paid-for daily newspaper, 2008 to 2009 and 2004 to 2009 1-year growth (2008 to 2009) 5-year growth (2004 to 2009) 6% 4% 2% 0% -2% -4% -6% -8% 35% 25% 15% 5% -5% -15% Source: World Association of Newspapers and News Publishers' (WAN-IFRA) annual world press trends 2010.

Newspaper titles growth worldwide Daily newspaper titles, 2008 to 2009 3% 2.7% 2% 1% 1.3% 1.0% 1.7% 0% 0.2% 0.0% 0.0% Source: World Association of Newspapers and News Publishers' (WAN-IFRA) annual world press trends 2010.

Five largest markets for newspapers Average number of copies sold daily in 2009, millions 120 110 109 100 80 60 50 46 40 20 - India China Japan United States Germany 20 Source: World Association of Newspapers and News Publishers' (WAN-IFRA) annual world press trends 2010.

E-books: A skyrocketing market Trade wholesale electronic book sales, United States US$ millions 120 Q3 2010 = $119.7 million 100 80 60 40 20 0 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Sources: Amazon, International Digital Publishing Forum.

Tablets will take 1 in 4 PC sales by 2015 Percentage of PC unit sales, United States Percent Desktop sales Notebook/laptop sales Netbook/mini PC sales Tablet PC sales 100 90 80 70 60 50 40 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 Source: Forrester Research ereader Forecast, GigaOM.

Mobile behaviors in Japan, U.S., and Europe By percent of total mobile audience, 2010 30% 25% Japan U.S. Europe 20% 15% 10% 5% 0% Accessed social networking site/blog Listened to music on mobile phone Captured video Watched TV and/or video on mobile phone Played games Sources: comscore MobiLens, June 2010, Japan, United States, and EU5 (UK, DE, FR, ES, and IT).

Smartphones surpass global PC shipments for the first time in history Million 120 100 80 PC shipments Smartphone shipments 89.6 80.8 83.2 100.9 89.7 92.1 81.1 60 40 20 63.7 66.3 34.9 41.9 42.8 53.9 54.7 66 63 0 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Source: International Data Corp.

Number of mobile-only Internet users expected to climb significantly Million 1800 1600 1400 1200 1000 800 600 400 200 0 Mobile Internet users Global 1,413 U.S. 1,135 860 657 505 400 2008 2009 2010 2011 2012 2013 Million Mobile-only Internet users 900 800 788 700 600 Global North America 500 487 400 300 200 100 14 32 79 188 0 2010 2011 2012 2013 2014 2015 Source: emarketer, Cisco VNI Mobile.

Globalization of media and entertainment Viacom revenue distribution between U.S. and international 100% Domestic Foreign 80% 22% 24% 29% 28% 28% 60% 40% 78% 76% 71% 72% 72% 20% 0% 2006 2007 2008 2009 2010 Source: Viacom annual reports from 2006 to 2010.

Globalization of media and entertainment News Corp. revenue distribution between U.S. and international 100% Domestic Foreign 80% 46% 47% 50% 47% 47% 60% 40% 20% 54% 53% 50% 53% 53% 0% 2006 2007 2008 2009 2010 Source: News Corp. annual reports from 2006 to 2010.

Globalization of media and entertainment Disney revenue distribution between U.S. and international 100% Domestic Foreign 80% 23% 23% 25% 24% 26% 60% 40% 77% 77% 75% 76% 74% 20% 0% 2006 2007 2008 2009 2010 Source: Disney annual reports from 2006 to 2010.

Effect of globalization on creative direction The rise of local content, Russia and Brazil Domestic films grew to 25 percent of the Russian market in 2008 from 4 percent at the start of the decade. Disney made a first attempt at a film specifically for a Russian-speaking audience with a Russian cast and Russian writers, directors and producers. The film reflects a new reality at Disney and in Hollywood generally that dubbed American blockbusters are no longer enough to maintain a foothold in lucrative foreign markets. The approximately 80 Brazilian films (including international co-productions) released in 2009 accounted for 15 percent of the local market, a 50 percent increase compared to 2008. Sources: Michael Schwirtz, Home of the Mouse Finds Box Office Success in the Land of the Bear, New York Times, Nov 2009. John Hopewell, Brazilian co-prods boom as int'l partners get real, Variety, May 2011. Karen Chu, Fox Filmed Entertainment's Jim Gianopulos: 'Theft' Is the Film Industry's Biggest Problem, Hollywood Report, June 2011.

Effect of globalization on creative direction The rise of local content, China and India Fox International Productions is co-financing and co-creating foreignlanguage films for local audiences, like My Name Is Khan in India and Hot Summer Days in China. our local production in China was the number one film in China on the same weekend our local film was the number one film in India So we d like to continue our local strategy in markets around the world that have high quality local filmmaking talents, and an audience that is hungry for films that reflect their culture," Fox Filmed Entertainment chairman Jim Gianopulos. Sources: Michael Schwirtz, Home of the Mouse Finds Box Office Success in the Land of the Bear, New York Times, Nov 2009. John Hopewell, Brazilian co-prods boom as int'l partners get real, Variety, May 2011. Karen Chu, Fox Filmed Entertainment's Jim Gianopulos: 'Theft' Is the Film Industry's Biggest Problem, Hollywood Report, June 2011.

Innovations in technology & business models Online streaming: Netflix Netflix is a home entertainment service provider that currently distributes via DVDs and online streaming (similar to LoveFilm in Europe). The Netflix business model is profitable in the short run particularly because it does not have high costs of ownership (e.g. production facilities, warehouses). The company s stock was doing phenomenally will in the previous 2 years (until recent missteps), powered by a push towards streaming, however Its recent contract negotiations proved who has the upper hand in the video streaming business: Content providers. Content providers can sell their content directly to consumers or sell it to the highest bidder. As streaming becomes the norm due to adequate Internet speeds, how will business models evolve to optimally monetize the value chain for both content and service providers? Source: Panos Mourdoukoutas, What is wrong with Netflix's business model?, Forbes, September 2011.

Innovations in technology & business models Platform-agnostic entertainment: icloud Cloud computing is where computing is provided as a service rather than a product. Apple will be one of the leading providers of this service via icloud, which will work seamlessly with applications on iphones, ipads, ipod touches, Macs or PC s. Disney also plans to launch a similar service specifically for VOD called Keychest, with a goal of providing digital media to customers through any Internet-enabled device. As entertainment becomes platform-agnostic, what is the optimal business model for service providers to cater for consumers needs while compensating content providers previously individual platform rights? Source: Apple Introduces icloud, Apple, June 2011. Ethan Smith, "Disney Touts a Way to Ditch the DVD, WSJ, November 2009.

Live Nation Entertainment Live event attendance Number of attendees, millions 70 64 60 50 57 52 47 40 30 20 10 0 2007 2008 2009 2010 Source: Live Nation Entertainment annual reports.

Live Nation Entertainment Operating profits by segment Profit, US$m 150 100 50 0-50 -100-150 -200-250 -300-350 Notes: Artist Nation segment primarily provides management services to music recording artists in exchange for a commission on the earnings of these artists, ecommerce manages our consumer websites. Source: Live Nation Entertainment annual reports. 2008 2009 2010 Concerts Ticketing Artist Nation ecommerce Sponsorship

Top-grossing films Worldwide, 2010 Rank Source: Box Office Mojo. Film Gross earnings (US$ millions) Domestic (% earnings) Overseas (% earnings) 1 Toy Story 3 $1,063.2 39.0 61.0 2 Alice in Wonderland $1,024.3 32.6 67.4 3 Harry Potter and the Deathly Hallows Part 1 $953.0 31.0 69.0 4 Inception $825.5 35.4 64.6 5 Shrek Forever After $752.6 31.7 68.3 6 The Twilight Saga: Eclipse $698.5 43.0 57.0 7 Iron Man 2 $622.1 50.2 49.8 8 Tangled $576.5 34.6 65.4 9 Despicable Me $543.1 46.3 53.7 10 How to Train Your Dragon $494.9 44.0 56.0

Top-grossing films United States, 2010 Source: Box Office Mojo. Rank Film Gross earnings (US$ millions) 1 Toy Story 3 $415.0 2 Alice in Wonderland $334.2 3 Iron Man 2 $312.4 4 The Twilight Saga: Eclipse $300.5 5 Harry Potter and the Deathly Hallows Part 1 $295.0 6 Inception $292.6 7 Despicable Me $251.5 8 Shrek Forever After $238.7 9 How to Train Your Dragon $217.6 10 Tangled $199.6

Top-grossing films Outside of United States, 2010 Source: Box Office Mojo. Rank Film Gross earnings (US$ millions) 1 Alice in Wonderland $690.1 2 Harry Potter and the Deathly Hallows Part 1 $658.0 3 Toy Story 3 $648.2 4 Inception $533.0 5 Shrek Forever After $513.9 6 The Twilight Saga: Eclipse $398.0 7 Tangled $376.9 8 Clash of the Titans $330.0 9 The Chronicles of Narnia: The Voyage of the Dawn Treader $310.3 10 Iron Man 2 $309.6

Top-grossing films of all time Worldwide Rank Film Gross earnings (US$ millions) Domestic (% earnings) Overseas (% earnings) 1 Avatar (2009) $2,782 27.3% 72.7% 2 Titanic (1997) $1,843 32.6% 67.4% 3 4 The Lord of the Rings: The Return of the King (2003) Pirates of the Caribbean: Dead Man's Chest (2006) $1,119 33.7% 66.3% $1,066 39.7% 60.3% 5 Toy Story 3 (2010) $1,063 39.0% 61.0% Source: Box Office Mojo.

Video streaming YouTube statistics 35 hours of video footage is uploaded to the site every minute. Over 13 million hours of footage were uploaded in 2010. More video is uploaded every 60 days than the three major U.S. television networks produced in 60 years. Each week, YouTube receives the equivalent of 115,000 full-length feature films in uploads. 70% of YouTube traffic comes from outside the U.S. The base age demographic for YouTube is 18-54. Source: ReelSEO.com.

Piracy figures Video will make up 90% of all Internet traffic in 2013 Wireless data traffic will increase 131% per year through 2013 File-sharing accounts for almost 28% of all Internet traffic, and of that amount, almost 18% is television content. South Korea has seen a 95% decline in the home video market since 2000, coinciding with increased broadband speeds (5 times the average speed the U.S.) Source: The Directors Guild of America, Peer Media Technology.

Market for home entertainment North America, US$ billions Source: PricewaterhouseCoopers LLP, Wilkofsky Guen Associates.

Home entertainment rental and sell-through spending United States US$ billions 22 20 18 16 14 12 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Digital Entertainment Group.

Cable vs. network advertising market United States US$ billions 26 24 Cable 22 20 Network 18 16 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Canadian Radio-Television and Telecommunication Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky.

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