Industry Update Presented by: Jim Bottoms May 212
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Reasons to be Cheerful (Part 1) Yes No The European Championships start in 17 days The Olympic Games start 7 weeks later Interest in video entertainment in all its forms is booming boosted by increased flexibility UltraViolet is on its way European BD video production grew by nearly 4% in 211 Last year was the best year for BD replication investment since 27 and the second best year ever 3
1 Disc Revenues Continue to Dominate in 216 Western Europe Retail Value ( Billions) 9 8 7 6 5 Online Video Pay TV VoD 4 3 Blu-ray 2 1 DVD-Video 21 211 212 213 214 215 216 NB: DVD-Video and Blu-ray includes sell-through and rental 4
Consumers Are Still Buying Discs Every Year Annual Household Disc Buy Rates 9 8.5 21 211 8 7.4 7.72 7 6.67 6 5 4 3 3.6 3.25 2.9 2.93 2 1 USA UK France Germany Note: Includes DVD and Blu-ray sell-through and excludes rental. Figures reflect average number of discs purchased per household in each year (i.e. total disc sales divided by total households) 5
Digital Music Significance Varies by Country % Total Digital Music of Total Value H1 211 Estimate 6% 55% 5% 46% 4% 3% 2% 23% 24% 16% 22% 19% 24% 1% 6% % USA Austria Denmark France Germany Italy Netherlands Poland Japan 6
Consumer Spend $Bn Online & Mobile Games Share of Global Market Revenue Growing 5 4 22% Mobile 3 36% Online 2 1 42% Packaged 28 29 21 211 212 213 214 215 Mobile 4.4 5. 5.8 6.8 7.8 8.9 9.9 1.7 Online 4.8 5.4 6.5 8.4 11.2 13.5 15.4 17. Packaged 36.2 3.8 28.7 25.2 21.5 2.7 2.3 19.8 Total 45.4 41.1 41. 4.5 4.5 43.1 45.6 47.4 Note: Online revenues includes revenues from subscriptions, DLC (downloadable content), transactions, full game downloads. Ad generated revenues not included. 7
Sell-Through Blu-ray Retail Sales Development (M Units) 6 5 Global 435 16% 55 11% 563 4 358 22% 3 21 34% 281 27% 2 154 37% 1 21 211 212 213 214 215 216 8
15 1 5 Sales (M Units) Blu-ray PS3 PS4 1.3 11.1 4.3 4. BD Player Growth 12.1 3.4 BD Market Overview - USA 12.8 13.1 13.2 13.1 2.5 2.5 1.5 3.8.7 4.5 4.5 21 211 212 213 214 215 216 5% 4% 3% 2% 1% %.2 25 2 15 1 5 Sales (M Units) 79 99 Homes Owning BD Players Household Saturation (%) 17.% Blu-ray PS3 PS4 23.9% 3.7% 35.2% 14.% 14.9% 14.4% BD-Video Title Sales 122 148 175 2 22 21 211 212 213 214 215 216 37.9% 12.8% 42.1% 1.3% 46.3% 11.6% 12.% 2.1% 5.2% 8.6% 7.6% 21 211 212 213 214 215 216 9
1 8 6 4 2 Sales (M Units) BD Market Overview Western Europe* BD Player Growth Blu-ray PS3 PS4 8.4 8.8 8.9 8.6 7.5 6.2 4.8 4.6 4.9 4.8 4.4 5. 3.4 3.4 1.9 2.2 1.1.4 21 211 212 213 214 215 216 16 14 12 1 8 6 4 2 BD-Video Title Sales Sales (M Units) 141 128 111 92 73 56 44 21 211 212 213 214 215 216 25% 2% 15% 1% Homes Owning BD Players Household Saturation (%) Blu-ray PS3 PS4 21.3% 18.4% 15.% 11.3% 1.7% 8.8% 11.7% 11.6% 1.5% 8.7% 23.4% 8.1% 5% % 7.6% 6.6% 5.6% 4.3% 1.1% 3.% 21 211 212 213 214 215 216 * Data relates to top 16 European markets. 1
Total Retail Sales (M Units) 7 Total DVD/BD Software Market Outlook: Western Europe 635 6 593 55 55 5 456 4 45 356 3 2 1 21 211 212 213 214 215 216 Blu-ray 44 56 73 92 111 128 141 DVD 591 537 477 413 345 277 215 Note: DVD-Video/Blu-ray value includes sell-through and rental 11
Total Retail Sales (M Units) 8 7 6 5 4 718 Total DVD/BD Software Market Outlook: USA 672 63 583 53 575 525 3 2 1 21 211 212 213 214 215 216 Blu-ray 79 99 122 148 175 2 22 DVD 639 573 58 435 355 276 25 Note: DVD-Video/Blu-ray value includes sell-through and rental 12
BD Short-Term Production & Capacity Requirements (Million Discs) 1 North America 1 Europe 9 955.6 9 8 7 843. 8 7 6 5 62.5 47 6 5 612. 674.6 4 3 2 319 361 4 3 2 471. 21 252 35 1 1 21 211 212 21 211 212 BD Production* BD Capacity * Includes BD-Video and BD-ROM (PS3/Wii U) 13
Total Production (M Discs) Europe BD Production Outlook Total Production 2.6m Total Production 251.5m 12 1 8 87.9 13.8 6 63.5 4 34.7 32.8 45.2 45.3 38.9 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 21 211 14
Broadcasters Planning 3D Content UK Finland Poland USA Spain Japan Portugal France Germany Korea Brazil 15
Interest Level The Bottoms Barometer of New Product Launch Q1 21 Q3 21 Mass PR consumer hype TODAY Positive response But with caution Realistic expectations Lets focus on all the negatives Launch Reality Dawns Doubters Rule Normality Returns 16
Pay TV & IPTV Operators Offering 3D Content Services December 211 USA UK Finland Sweden Denmark Estonia Norway Poland Russia Canada Spain Germany Netherlands Japan Portugal France Czech Belgium Belarus Romania Korea Brazil Italy Slovakia Australia Middle East Switz *Includes both 3D broadcast tests and channel/ on-demand service roll-out 17
3D Hardware Ownership Continues to Grow By Default 3D Blu-ray 3D TV Households (Millions) Household Saturation % Households (Millions) Household Saturation % 4 35 3 25 2 15 1 5 37.6 31.6 21% 24.4 18% 16.6 14% 8.9 9% 3.7 5%.6 2% % 21 211 212 213 214 215 216 25% 2% 15% 1% 5% % 1 9 8 7 6 5 4 3 2 1 89.8 51% 66. 37% 44.2 26.6 25% 13.4 15% 5..7 8% % 3% 21 211 212 213 214 215 216 6% 5% 4% 3% 2% 1% % 3D BD Player Households Saturation 3D BD Player Households Saturation 18
3D Content Development USA 3D Blu-ray Titles Widely Available at Retail 3D Blu-ray Title Sales No. of Titles Available 3 28 2 25 15 2 175 15 1 1 95 5 5 19 21 211 212 213 (M Units) 2D Sales 3D Sales 14% 9% 5% 1% 86% 91% 95% 99% 21 211 212 213 3D Theatrical Release Development 212 3D Theatrical Release Studio Breakdown Number of Title Releases 6 8 7 7 7 48 5 5 39 6 4 5 5 3 2 1 16 24 4 2 2 3 3 29 21 211 212 213 Sony Pictures Fox Warner Bros. Walt Disney Universal Pictures Paramount Pictures Lionsgate Others 19
In-Home 3D Market Overview: Western Europe 16 Millions 3D Blu-ray Title Sales 14 12 34% 1 26% 31% 8 19% 13% 6 6% 4 2 1% 99% 94% 87% 81% 74% 69% 66% 21 211 212 213 214 215 216 3D Sales.3 3.5 9.3 17.5 29.2 4.4 48.5 2D Sales 42.7 53.5 64.7 75.5 82.8 88.6 92.5 2
Consumer Feedback on Digital Copy 12 focus groups conducted March 212 (UK, France and Germany) Amongst Blu-ray player owners who buy and watch movies Low awareness of Digital Copy Only a few people aware Only 1 or 2 had used digital copy Term considered confusing everything is digital these days, many thought another name would be better High levels of interest in Digital Copy when made aware When fully explained, many very interested (5%+) Particularly younger people already watching video on phones and tablets Also families with children who want more flexible viewing Liked the idea of Digital Copy on older movies Probably not on DVDs, except maybe kids titles Even after studying a number of packs, consumers still did not fully understand what digital copy is and how it works 21
First BD titles with UltraViolet released in US Q4 211 from Warner, Sony, Universal Main European activity will be centred on late 212 Most will focus on UK only Many feel it is premature to launch Some major issues still to be resolved: Common file format Retailer support Clear consumer education program Consumers don t like setting up multiple online accounts Concerns over infrastructure limitations with everyone streaming from the cloud (and security) Some concerns over payment models Who pays for on-going streaming? At present streaming being offered by Studio websites, Flixster and Vudu only Disc to Digital initiatives will help - but is the pricing right? 22
Household Saturation of IP Enabled Devices: Western Europe Household Saturation: 215 7% TV Displays 6% 64% 5% 52% 4% 3% 2% 1% % 19% 16% 1% 1% 24% 22% 4% 4% 29% 25% 11% 7% 34% 25% 23% 11% 38% 23 36% 25% 25% Installed Base 29 21 211 212 213 214 215 (M Units) Games Console 33.2 4.8 44.1 43.3 43.5 44.3 45.5 TV Display 1.7 7. 17.8 35.4 6.8 93.5 132. Blu-ray Hardware 1.7 6.1 12. 18.4 25. 3.7 35.3 Pay-TV STB/DVR 27.4 37.9 5.2 59.2 63. 65. 67. 14% 37% 17% Pay-TV STB/DVR 38% Games Consoles 26% Blu-ray Hardware 2%
Penetration of IP-Ready Personal CE Devices: Western Europe 8% 7% 62% 7% Personal Penetration: 215 Smart Phones 77% 6% 53% 5% 44% 4% 34% 3% 2% 1% % 1% 4% 7% 11% 15% Tablets 18% Installed Base (M Units) Smartphones 21 14.1 211 179.3 212 219.3 213 256.5 214 288.4 215 316.7 Tablets 3.7 14.5 3.5 47.3 61.6 72.9 24
Fragmented Online Landscape: Western Europe UK FRANCE GERM ANY? ITALY BENELUX NORDICS SPAIN = Exited the business 25
Two-Thirds of Respondents Use Their Tablet to Watch Video Content, This is Especially High in the USA 74% 73% of Apple ipad owners watch video content compared to 61% of those who own another brand of tablet. Yes No 34% 66% Overall (536) Base: 536 Tablet owners 26% 32% 39% 41% 68% 61% 59% 74% France (115) Germany (89) UK (148) USA (184) 26
39% of Tablet Owners Are Watching Movies % 1% 2% 3% 4% 5% 6% 7% 8% 9% General surfing on the web 8% Checking my personal/work emails 74% Listening to music Shopping online Reading books, magazines or newspapers Visiting social network sites, such as Facebook or Myspace Downloading and using apps Watching streamed videos online (e.g. YouTube, Google Video) Watching movies 54% 51% 51% 5% 49% 44% 39% Base: 536 Tablet owners Texting/Instant messaging Save, edit or maintain digital photos Online gaming Watching other TV programmes 27% 27% 26% 24% 27
Focus on Content Company Operations All content companies are focused on cost reduction Better forecasting, fewer returns, packaging, extras, outsourcing, sku strategy etc. Decisions increasingly being made centrally Reducing headcount around the world is a priority Expect more shared distributor activities e.g: Universal and Paramount in Italy and Spain Sony and Universal in Australia Sony and Fox in Brazil Supply chain no longer seen as giving competitive advantage Industry more open minded than ever Ideas rejected in the past may be accepted today. 28
Reasons to be Cheerful (part II) Packaged video in decline, but revenues still significant Still room for BD growth Consumer spend on digital starting to materialise, in particular in the USA Experimentation and multiple new initiatives to support transition from physical to digital UV, D2D, Digital Copy can all help maintain interest in disc Phenomenal growth in connected device ownership will boost overall video consumption 29
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