2013 - ultraviolet prospects (bsac)
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Ultraviolet prospects presentation for BSACTRANSCRIPT
UltraViolet – impacts and opportunities across the value chain
What UltraViolet means to participants across the film industry value chain
Jeremy Michaels, Oliver & Ohlbaum Associates
BSAC Conference, Thursday 14th March 2013
O&O
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A little bit about us…
We are the leading independent advisor to the UK media, entertainment
and sport industries
We provide strategy advice to the organisations, regulators and investors
shaping these sectors
As part of this strategy work, we look at the forces that will drive change
in the industry over the next decade
We conduct large scale consumer research annually to understand the
habits, ownership, attitudes and behaviour of the UK media consumer
We have worked for more than 200 clients in the UK and internationally
inc: BBC, ITV, C4, NBCU, Virgin Media, BT, Discovery Networks, Viacom,
EOne, FAPL, UKTV, Microsoft, O2, KKR, Goldman Sachs, Ofcom, etc…
Contents
What is UltraViolet?
How is the rollout going?
Who is interested in UltraViolet going forward?
Why does UltraViolet matter – the broader context?
What is the impact likely to be?
Some final thoughts
3
What is UltraViolet?
Our definition of UltraViolet as used in our annual consumer survey
“In response to the rise of on-demand movie services, major US studios have developed a
system called 'UltraViolet' that allows consumers who purchase a DVD to also have access
to a digital copy of their purchased content for any device”
Three key points to remember
It is a common DRM standard across multiple devices adopted by DVD publishers/studios
and licensed to device manufactures/platform operators to allow consumers to access
their digital locker using multiple devices
It is not the only "tethered" package media/digital access system – US and UK retailers
have introduced similar ecosystems - e.g. Tesco Clubcard TV/Blinkbox; Walmart/Vudu
It allows for up to six digital users (i.e. intended to be shared with friends and family) -
which can be either multiple users or multiple devices/platforms (however, a secondary
market for low cost UltraViolet access codes is already emerging in the US and the UK)
Definitions and key aspects
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How is the rollout going?
Geographic coverage
11m subscribers globally (our October 2012 survey indicated between 500k and 1m in the UK)
Currently available in the US, UK and Canada
The system is operational in Australia, New Zealand and Ireland
Roll out to France and Germany is on track for Q3 2013
Content, providers and retailers
8,700 UltraViolet-enabled movies and TV shows
9 major content providers: BBC, DreamWorks Animation, Fox, Lionsgate, Paramount, Sony Pictures,
Starz Anchor Bay, Universal and Warner Bros
9 retailers including Barnes & Noble (NOOK Video), Best Buy (CinemaNow), Cineplex, Flixster, M-
GO, ParamountMovies.com, SonyPicturesStore.com, UniversalHiDef.com and Walmart (VUDU)
By the numbers: updates as at 1st March 2013
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Over 11m subscribers worldwide with minimal marketing to date is an encouraging start for UltraViolet…
Source: Braincomm, UltraViolet DECE, Oliver & Ohlbaum analysis
Who is interested in UltraViolet going forward?
Our annual survey:
An internet-based survey, this year with 3,114 respondents
Sixth year of the survey, allowing for tracking of consumer interest and adoption
Up-weighted sample for Pay TV homes
A boosted sample for e-reader and tablet use as looking for behaviour within these owner groups
Weighted back to be nationally representative of TV type and demographics
Results from previous years – i.e. espoused behaviour vs actual – give us confidence in the data*
The O&O ‘Battle for the Media Consumer Survey’
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For the last six years we have run a bespoke online survey of 3,000+ respondents, with an up-weighted sample for pay TV
homes, weighted back to be nationally representative. For the last two years we have asked about Ultraviolet
Source: Oliver and Ohlbaum Analysis
Note: * the variance between planned (intended or espoused) purchase of tablets and e-Readers from 2011 to actual behaviour in 2012 provides less than a 1% variance
Who is interested in UltraViolet going forward?
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UltraViolet may carve out a niche, and consumers are willing to pay
Source: Oliver & Ohlbaum Consumer Survey 2012 (n=3,114)
3.6%
Yes…
Have you heard of UltraViolet, are you interested and how might it impact on DVD consumption?
…and used it
18.5% …but not used it
78.0% No
Are you interested in using it?
7.5% Very
27.9% Somewhat
Impact on DVD purchasing?
26.1% Buy more
31.8% Pay more
39% Using or
interested in
UltraViolet
Substantial
proportion
willing to buy
and pay more
Our research indicated that 39% are interested in using UltraViolet…
16.5% 8.5% 4.4%
Up to
£1 more
Up to
£2 more Up to £3
more
Since its’ peak in 2004, total home entertainment revenues in the UK have fallen by over 40% in just 7 years, but are now
beginning to show signs of stabilisation. UK digital revenues are not likely to have over-taken physical rental this year
Why does UltraViolet matter – the broader context?
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Declining DVD market has only been partially substituted by on-demand revenues…
451 601
821
1,175
1,392 1,557
1,399 1,302
1,440 1,454 1,311 1,267
1,165 427
500
596
721
853
921
910
917 806 783
664 572
584
494
494
462
476
389
327 280 265
263
253
246
63
68
73
74
67 75 96
101
107
114
0 1
39 52
878
1,101
1,911
2,453
2,775
3,027
2,772
2,613 2,601 2,604
2,361
2,238 2,161
0
500
1,000
1,500
2,000
2,500
3,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
£ Millions
Online VoD*
TV VoD
Film on
video (rental)
Non-film on
video (retail)
Film on
video (retail)
Source: BVA Yearbook 2012, Screen Digest, Oliver & Ohlbaum Analysis
Note: * includes rental VoD (DTR), retail (DTO or EST), subscription (SVoD) and free/ad supported VoD
UK home entertainment revenues, 1999-2011
9.55 9.27
6.80 6.39
3.99 5.13
17.96 18.00
0
2
4
6
8
10
12
14
16
18
20
Retail 2011 Retail 2012 Rental 2011 Rental 2012 Digital 2011 Digital 2012 Total HE 2011 Total HE 2012
US$ Billions
In the US, home entertainment grew, fuelled by digital growth that was nearly twice as large ($1.14bn) as the decline in
retail ($0.28bn) and rental ($0.41bn) combined ($0.69bn). By some definitions*, digital is now larger than the rental market
Why does UltraViolet matter – the broader context?
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US home entertainment consumer spending 2011 to 2012
… but US video consumption grew in 2012, fuelled by digital growth and maybe Blu-Ray
Source: DEG, Screen Digest, Oliver & Ohlbaum analysis
Note: * definitions vary regarding SVoD and subscription disc/digital breakdown
Retail 2011-12
- DOWN 2.93%
Rental 2011-12
- DOWN 6.03% Digital 2011-12
- UP 28.57%
Home
Entertainment
2011-12
- UP 0.22%
In the pre-web 2.0 era (and to a slightly lesser extent since then) DVD was the ‘cash cow’ for the studios. UltraViolet may
be a successful strategic move to defend and protect DVD revenue, and extend the shelf-life of physical product
Why does UltraViolet matter – the broader context?
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Typical pre-web 2.0 distributor shares by window and driver of revenues of share
Is UltraViolet a defence to protect DVD revenue in the short-term?
Gross
revenue
(exc sales
tax) $Bn
Distributor
share
Net
distributor
revenue
$Bn
Drivers of
share
Theatric 25 40% 10 • Concentration of ownership
and cinema chains in
national market
• Adoption of digital cinema
DVD/VHS 53 55% 30 • Retail DVD concentration
• Mix of retail outlets
• Vertical integration of
labels by distributors
• Role of wholesalers and
vendor management
TV related 22 50% 11 • Increased ownership
concentration of pay TV and
free TV
• Importance of film versus
sport and home grown
programming
Total 100 51% 51 • Market concentration of
distributors
• Throughput of film by
distributor
Source: Interviews, Company Accounts, Oliver & Ohlbaum Analysis, (and “From Middlemen to Mini Majors” © O&O 2007)
Why does UltraViolet matter – the broader context? Home entertainment is just part of a 5 way battle for consumer spend
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Free TV
/ STB
Pay TV /
STB
IPTV /
Games
console
PC /
Home
BB
Portable
PC /
Tablet
Smart
phone
TV
HOME BEYOND THE HOME
Platform / device battle
FTA Broadcasters
OTT Aggregators / Disruptors
Pay TV “packages”
Web 2.0 players
Packaged Entertainment
Services battle
On demand is attracting new competitors – often global – to the UK TV industry. As home entertainment migrates across
devices this battleground further intensifies, beyond the home and across five types of service providers
Source: Oliver & Ohlbaum analysis
Four possible scenarios…
Why does UltraViolet matter – the broader context?
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How will the battleground play out?
A single aggregator –
the ‘Amazon’ of VoD
Piracy wins out
Studios retain control – individually?
Platform operators keep the consumer –
the TV / BB ‘bundle’
Note: we think it is unlikely that device manufacturers (Samsung etc.) will, despite their efforts, have a significant position
1
2
3
4
First Second Third Fourth
Ultraviolet?
Theatrical Theatrical
0m 1m 2m 3m 4m 5m 6m 9m 12m 24m
Theatrical DVD Pay Per View/TVoD Terrestrial
First pay/SVoD
Second pay/VoD
Across the value chain, participants are experimenting with new ways of windowing content, with the theatrical window
being shortened (and sometimes bypassed) and VoD windows widening. UltraViolet maybe disruptive to other windows
Why does UltraViolet matter – the broader context?
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The lines between windows have blurred – UltraViolet provides another substitute
DVD retail
DVD rental
PPV/TVoD
First pay/SVoD
Second pay/VoD
Terrestrial
Early 2010
Theatrical window cut short
(avoid clash with World Cup)
July 2010
To VoD before pay TV
Oct 2011
“Margin Call”
Day and date
Oct 2011
“Tower Heist”
Th + 3 weeks
Various
“Freakonomics” & “House of
the Devil”: pre-theatrical VoD
Dec 2012
The first time that a major studio has bypassed traditional cable
TV outlets for an online distributor
Ultraviolet
Airplane/Hotel
Dec 2012
YouTube on Virgin America
Sep 2012
Digital before Blu-Ray/DVD
• The theatrical window is being shortened and tinkered with
• Digital disruption is impacting all windows
• On demand releases before theatrical
• Digital releases before Blu-Ray and DVD
• Studios bypassing cable TV for OTT distributors
• UltraViolet is – of itself – also disruptive
• The old window system is over
Jan 2013
VoD w/DVD +3
Studios would ideally want scenario (3), and could continue to be successful within scenario (4), but would most likely
want to avoid scenario (2) at all costs and ideally avoid (1) as well (learning from impacts on the music industry)
What is the impact likely to be?
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UltraViolet may help the studios avoid scenarios (1) and (2), and perhaps achieve (3)?
A single aggregator –
the ‘Amazon’ of VoD
Piracy wins out
Studios retain control – individually?
Platform operators keep the consumer –
the TV / BB ‘bundle’
Note: we think it is unlikely that device manufacturers (Samsung etc.) will, despite their efforts, have a significant position
1
2
3
4
Whilst our research indicates strongly that consumers see great benefit from the UltraViolet service, with no distinction
based on device usage or the number of viewings, it removes the capacity for effective price discrimination
What is the impact likely to be?
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It reduces the capacity to effectively price discriminate – potentially reducing revenues
5.00
2.00
1.30
1.00
0.40
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Cinema DVD Pay-TV SVoD FTA TV
First Second Third Fourth
window window window window
Per viewer cost of watching a film once – by window (£ net of VAT) By providing content into perpetuity,
at a flat rate cost for multi-device
usage and with unlimited viewing, it
is easy to see why our survey saw a
high level of consumer demand for
UltraViolet despite minimal marketing
However, content owners have in the
past been able to generate greater
revenue by price discrimination –
charging different prices for different
methods of viewing the content, and
for multiple use across windows
Source: Screen Digest, European Audiovisual Observatory, Oliver & Ohlbaum Analysis (and “From Middlemen to Mini Majors” © O&O 2007)
What is the impact likely to be?
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In particular it could cannabilise lucrative pay TV and SVoD windows
44.0% 52.0%
Percent of respondents interested in UltraViolet who subscribe to SVoD services:
Netflix Lovefilm
UltraViolet may provide competition for Pay TV and OTT incumbents and market leaders as people increasingly access
each others’ digital libraries (be they legitimate or not) or their own digital libraries on the move…
… and using our survey data we were able to estimate that SVoD revenues for Netflix and Lovefilm in the UK totals
between £260m - £275m per annum, indicating further the cannibalisation risk posed by UltraViolet
46.2% 14.5%
Percent of respondents interested in UltraViolet with a Sky Movies subscription:
Sky Virgin Media
… and using our survey data we were able to estimate that subscription revenues for Sky Movies across all platforms is in the
range of £300m - £325m per annum, and so clearly the cannibalisation risk that UltraViolet poses to Sky is considerable
Source: Oliver & Ohlbaum Consumer Survey 2012 (n=3,114)
This is a delicate path to tread…
Some final thoughts
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Three things to be mindful of
1. Trade off between gaining traction and growing to scale without crushing other windows…
… but if successful, do integration issues arise?
2. UltraViolet can be a number of different things…
• NOW: digital locker for purchased, physical product
– Maintains price (e.g. Blu-Ray) for physical product
– Establishes a player infrastructure (and a new, unifying window for the future)
• FUTURE: ‘pure’ digital locker (or hybrid)
… but if successful, do other windows collapse?
3. There are many ways to exploit the opportunities…
• B2B: what would happen if UltraViolet was licensed to Blinkbox, for example? (and are
retailers better placed to stop ‘leakage’ e.g. through use of discount/loyalty cards etc.?)
• B2C: longer term, will one entity dominate the ecosystem as Apple iTunes did for music?
x
x
x
x
Connect
For more details:
Email: [email protected]
Phone: 020 7313 5918
Follow: @OliverOhlbaum
Blog: www.oando.co.uk/blog/category/entertainment/
Web: www.oando.co.uk
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