on demand quarterly - march 2008

8/14/2019 On Demand Quarterly - March 2008

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MAGNA GlobalOn-Demand Quarterly

Fourth Quarter 2007 ReviewMa rc h 2008

Co nta c t: Brian Wieser, CFA, Direc to r of Ind ustry Ana lysisTel: 917-542-7008 Email: b rian.wieser@magna g lob a l.c om


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MAGNA Global On-Demand Quarterly: Marc h 2008

Overview

DVRs: Crouc hing Hardwa re, Hidden Softw are

Ad dressing Ad vertising

DVR and VOD News

Ap pend ix 1: DVR and VOD Forec ast Data Ap pend ix 2: DVR Forec ast Cha rt

Ap pend ix 3: VOD Forec ast Chart

Ap pend ix 4: Internet Ac c ess Forec ast Data

Ap pend ix 5: Internet Ac c ess Forec ast Chart


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Overview

We have upd ate d o ur On-Dema nd mod els to a c c ount for the most rec ently co mp leted quarter,mo d ified our historic a l da ta slightly to inc orporate ne w information a bout the p ast and extend ed ourforecasts through 2012

Our yea r-end 2012 forec ast for DVR subsc riber households is 42.7 million (36.3% of TV househo lds), up fromour estima te of 24.6 million (22.1% of TV households) as of the end of the fourth q ua rter of 2007

By 2012, we e xpec t tha t true Video-on-Demand (d istinct from the simula ted VOD offe red by DBSproviders Direc TV a nd Ec hoSta r) will reac h 61.9 million households (approximate ly 52.7% of te levisionhouseho lds). This c ompares with 36.0 million VOD households (32.3% of to ta l TV househo lds) a t the end ofthe fourth qua rter of 2007

As of the end of Dec em ber 2007, we estimate tha t 63.9 million househo lds ha d broadb and access out of

116.8 million to ta l househo lds. We estima te tha t inte rnet ac c ess wa s enjoyed b y ap proxima tely 72.4million househo lds by the end o f the fourth qua rter of 2007. We expec t tha t tota l b roa dband a c c ess willrise to c over 87.5 million househo lds by the end of 2012. These figures ha ve b ee n revised from priorestima tes to reflec t new informa tion from rec ent US Census da ta for Oc tob er 2007, and now exc luderap idly g row ing mo b ile b roa dband servic es from our to ta ls. These lat ter figures a re likely dup lic a tive, asthey rep resent mostly sec ond ary internet a c c ess servic es


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DVRs: Crouc hing Hardware, Hidden Software

DVR set-tops will bec om e p ervasive as hardwa re p rices fall, but use w ill continue to require a service fee

During its annua l investor da y last m onth, Direc TV provided da ta assoc ia ted with the c ost o f the set-topboxes it sup plies to its c ustomers

DVRs have fa llen signific antly in p ric e, from $245 ea c h in ea rly 2005, to $150 during the p resent q ua rter ad rop of a lmo st 40%

During the same t ime period , DVR subsc ription fees for DirecTVs basic sub sc ribers ha ve held g enera llyc onstant a t $5.99 per month (a ). Other MSOs c ontinue to c ha rge more than $10 per month fo r DVR servic e,with g ene ra lly rising not fa lling pricing, desp ite less expe nsive ha rdware

These da ta points highlight our oft-sta ted view of c ab le and sa tellite op erators business mo dels a roundDVRs: they are a va lue-added service. Although falling p rices of DVRs mean that hard drives willincreasingly be included in standa rd set-top boxes, DVR subsc ription fees are not going away . MSOs foc uson the p rofitab le d ep loyment o f tec hnolog y, and this in turn me ans tha t the m a jority of c onsume rs who

foc us on va lue-oriented basic video servic es will be unlikely to adop t a dvanc ed DVR servic es any timesoon

(a) As of Oc tob er 7, 2005, Direc TV wa s cha rging $5.99 per month for DVR service ac cording to a New York Times artic le from the sam eda te. On DirecTVs web site as of Ma rch 2008, the fe e rema ins $5.99 for DVR services on b asic p ac kag es

DirecTV OEM Set-top Box Costs

Sourc e: Direc TV, Feb ruary 2008 Inve stor Presenta tion


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Addressing Advertising (c ontinued)

Long-tail of channels will be switched,

and will likely have ca pab ility forunicast ad dressab le ad vertising

Most pop ular channels will bebroadcast in conventional manner,

and will not likely have ca pab ility for

unicast ad dressab le ad vertising

Source : Com c ast Investor Presenta tion, Ma y 2007

Ca b le op erators a re expec ted to c ontinue broadc asting the m ost po pular c hannels (trad itiona l TVnetw orks as we ll as som e c ab le ne two rks), and switch a ll others. After the a pp rop ria te a d servingtec hnology is imp lemented , ad dressab le a dvertising will be possib le on netw orks which a re switched oninventory rep resent ing less tha n a third of a ll TV view ing , and then, only on invento ry c ontrolled by thec ab le o perator (typica lly 2 minutes per hour, or 10-15% of to ta l inventory on these ne tworks). Co nversely,a ll video served by AT&Ts U-Verse is switc hed today, so addressab le advertising c ould theoretica lly b e

inc luded on a ll invento ry they control On the follow ing p age we summa rize rec ent c omments from c ab le op erato r ma nag ement tea ms

related to this tec hno logy, as we ll as our near-term fo rec asts

Althoug h we e xpec t tha t c ab le o perators will aggressively expand the use o f SDV as muc h a s possible forits b roa der econo mic b ene fits, in the ne ar term, ad d ressab le a dvertising will c ontinue to be the dom a inof d irec t ma il, e-ma il and online d isp lay and sea rc h a dvertising . How ever, the potentia l for app lying thistec hnology to the dom inant form of med ia c onsump tion television will susta in c ontinued efforts from

MSOs, prog ramm ers, tec hno log y vendors and advertisers a like in the yea rs ahea d


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Addressing Advertising (c ontinued)

17.3 m illion

Entire system unica st at launc h

Introd uc ing in 3 ma rkets in 2008

Launc hed in Orland o system in 2007

Dep loyed SDV ac ross en tire system

3 divisions deployed as of August 2007 (Phoenix, N.Virginia, Orange County)

Tested rollout in LA

Com plete de ployment expe cte d a c ross ma jority of footp rint by end of 2009

9 of 23 divisions as of end of 2007, presently insta lling in 9 mo re

Will dep loy it in eve ry division tha t needs it by e nd of 2008

Tria ling in two ma rkets (Cherry Hill, NJ + Denve r) as of Jan 2008

15% of foo tp rint to hav e SDV deploye d b y end of 2008

Notes

1.1 millionAT&T

7.0 millionTime Wa rner Cab le

2.8 millionCablevision

Total

0.2 millionMediacom

1.0 millionBright House

1.0 millionCox

1.5 millionCharter

2.7 millionComc ast

YE2008 Estima ted Digita lSubscribers with SDV

MSO

More tha n 17 million U.S. househo lds a t lea st 15% of the tota l will rec eive som e or a ll of the ir trad itiona l TV/video services throug h unic ast / switched d ig ita l video b y the end o f 2008

This rep resents househo lds with p otential for rec eiving unica st add ressab le advertising throughlinea r b roa dc asts

How ever, ad d ressab le a dvertising software ha s not ye t b een dep loyed beyond tria ls

The p rima ry nea r-term use o f SDV will be to expand the ava ilab ility HD content

Source: MA GNA Glob al, Light Rea ding, Co mp any Reports


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DVR and VOD News

DBS providers DirecTV and EchoStar remain the leading suppliers of DVRs

We estima te tha t Direc TV a dded 300,000 DVR subsc ribers, as more tha n 50% of new subsc ribe rs orderedadvanc ed set-top boxes (HD and / or DVR). By our estima tes, the c om pany now has app roxima tely 5.2million ho useho lds with DVRs (30.9% of to ta l sub sc ribers)

Despite a smaller overa ll sub sc ribe r ba se, simila r dyna mics a re driving Ec hoSta r s DVR subsc ribe r levels,which we estima te now to ta l 5.7 million househo lds (41.6% of to ta l subs)


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Com cast rem ains the lead ing provider of DVRs and VOD am ong c ab le ope rators

The c om pany rep orted tha t it now ha s 6.3 million HD and / or DVR c ustome rs as of the end of 2007. Withapproxima tely 275,000 DVR add itions by our estimates, we b elieve the c om pany now ha s 3.8 million DVRhom es (equa l to 15.8% of its tota l custom er ba se). Comc ast a lso has by far the largest numbe r ofsubscribers with access to video-on-demand: virtually all of its 15.2 million digital subscribers have access at

the p resent time

Subseq uent to the end of the quarter, Co mc ast p rovided new VOD viewing da ta for these c ustom ers.Rep orting 7 billion VOD views from launc h in 2004, the c om pany p osted 1 billion views betw een Nove mb erand Ma rc h 19, growing a t a ra te o f 275 million view s per month. This is up from a ra te o f 250 million p ermo nth last fa ll and ~200 million p er month ea rlier last yea r, outpac ing the grea ter tha n 20% grow th insubsc ribers with a c c ess to VOD over the same time p eriod

In its p ress relea se, Co mc ast no ted tha t tha t its 7 billion historic a l view s gene ra ted 1 billion hours wa tc hed ,ind ic a ting tha t historic a lly the a verage v iew lasted 8 minutes in d ura tion. How ever, for the m ost rec entmo nth, Comc ast a lso ind ic a ted tha t its 275 million views gene ra ted 130 million hours of view ing on ac urrent mo nthly ba sis, eq uiva lent to 28 minutes in dura tion per ave rage view

This rap id inc rea se in view ing time likely reflec ts the c ha nge in a ssets ava ilab le to Co mc ast s VODc ustom ers, whic h a t one time we re d om inated by shorter c lips suc h a s music videos, and now inc lude

hundred s of free m ovies a long side thousands of pay movies. Ac c ording to the c om pany, their c ustomersnow view 40 million movies per month (a lmo st 3 per VOD customer pe r month) through VOD

To p ut to ta l VOD view ership in a broa der context, assuming the 15.2 million VOD households to ta l TVc onsumption is in line with the rest o f the c ountry s a t 58.2 hours per we ek, or 256 hours per month, to ta lVOD viewing ac c ounts for 3.3% of tota l TV view ing amo ng these subsc ribers

DVR and VOD News


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Other highlights reported during the quarter inc lude:

Time Warner Cable added 253, 000 DVR subsc ribers, and now rea c h 23.1% of its basic c ab le home s. Thec om pany d id sta te tha t it delivered 1.3 billion strea ms for a ll of 2007, imp lying approxima te ly 300 millionVOD strea ms during the fina l qua rter of the yea r, or 13 strea ms per VOD household per month, roughlyc onsistent w ith to ta ls rep orted ea rlier in the yea r

TiVos stand -alone DVR subsc riber tota l wa s roug hly fla t a t 1.7 million a s of the e nd of tha t c om panysfourth qua rter

Charter rep orted tha t its VOD orders are up by 40% c ompared with a yea r ago, over a time whe n its VODsubsc ribers increa sed by 15%. Ad va nc ed video sub sc ribers including HD and DVR subs grew by 60%yea r over yea r. We estimate the c om pany now has 462,000 DVR subsc ribers, equiva lent to 16% of its

digital subscriber base

DVR and VOD News


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Appendix 1: DVR and VOD Forec ast Data

Source: MAG NA Globa l, Com pa ny Rep orts

Brian Wieser, CFA MAGNA Global On-Demand Deployment and Subscriber Estimates

MAGNA Global Director of Industry Analysis

(917) 542-7008

2001A 2002A 2003A 2004A 2005A 2006A 2007A 1Q08E 2Q08E 3Q08E 4Q08E 2008E 2009E 2010E 2011E 2012E

Total US TV Households 102,200 105,500 106,700 108,400 109,600 110,200 111,400 111,447 111,860 111,952 112,800 112,800 113,928 115,067 116,218 117,380 YOY Growth ------ 3.2% 1.1% 1.6% 1.1% 0.5% 1.1% 1.0% 0.8% 0.8% 1.3% 1.3% 1.0% 1.0% 1.0% 1.0%

Total M ultichannel Subscribers 89,980 92,881 95,003 97,562 98,698 98,114 99,769 99,716 99,948 101,432 101,945 101,945 103,331 104,313 104,850 105,241 YOY Growth ------ 3.2% 2.3% 2.7% 1.2% -0.6% 1.7% 1.8% 1.9% 2.0% 2.2% 2.2% 1.4% 0.9% 0.5% 0.4%

% of TV Households With DBS, Cable or TelcoTV 88.0% 88.0% 89.0% 90.0% 90.1% 89.0% 89.6% 89.5% 89.4% 90.6% 90.4% 90.4% 90.7% 90.7% 90.2% 89.7%

Digital Multichannel Subscribers 33,747 41,025 46,462 52,485 58,178 63,972 71,205 72,671 74,149 76,171 78,079 78,079 87,014 93,152 97,928 101,608 g ta enetrat on 37.5% 44.2% 48.9% 53.8% 58.9% 65.2% 71.4% 72.9% 74.2% 75.1% 76.6% 76.6% 84.2% 89.3% 93.4% 96.5%

VOD-Enabled Subscribers 3,243 7,660 12,910 19,278 24,160 29,902 36,030 37,485 38,736 40,249 41,797 41,797 49,248 54,340 58,503 61,857 YOY Growth ------ ------ 68.6% 49.3% 25.3% 23.8% 20.5% 18.7% 16.6% 16.4% 16.0% 16.0% 17.8% 10.3% 7.7% 5.7% % of Cable Footprint Enabled With VOD 19.4% 35.3% 52.0% 69.7% 76.6% 85.6% 88.8% 89.9% 90.5% 90.5% 90.9% 90.9% 91.2% 91.4% 91.4% 91.9%

MSO DVR Subscribers 620 1,018 2,212 5,495 10,610 16,719 22,746 24,160 25,458 26,776 28,161 28,161 32,356 35,941 38,795 41,257

YOY Growth ------ ------ 117.3% 148.4% 93.1% 57.6% 36.1% 32.4% 30.2% 26.8% 23.8% 23.8% 14.9% 11.1% 7.9% 6.3%

% of Basic Subscribers with DVRs 0.7% 1.1% 2.3% 5.6% 10.7% 17.0% 22.8% 24.2% 25.5% 26.4% 27.6% 27.6% 31.3% 34.5% 37.0% 39.2%

Stand-Alone DVR Subscribers 315 443 704 1,269 1,621 1,851 1,821 1,761 1,691 1,621 1,591 1,591 1,471 1,401 1,401 1,401 YOY Growth ------ ------ 58.9% 80.3% 27.7% 14.2% -1.6% -4.3% -7.1% -10.0% -12.6% -12.6% -7.5% -4.8% 0.0% 0.0%

Net Additions ------ 128 261 565 352 230 (30) (60) (70) (70) (30) (230) (120) (70) 0 0

Total DVR Subscribers 935 1,461 2,916 6,764 12,231 18,570 24,567 25,921 27,149 28,397 29,752 29,752 33,827 37,342 40,196 42,658 YOY Growth ------ ------ 99.6% 132.0% 80.8% 51.8% 32.3% 29.0% 27.0% 23.9% 21.1% 21.1% 13.7% 10.4% 7.6% 6.1%

DVR Subscribers as % of TV Households 0.9% 1.4% 2.7% 6.2% 11.2% 16.9% 22.1% 23.3% 24.3% 25.4% 26.4% 26.4% 29.7% 32.5% 34.6% 36.3% DVR Subscribers as % of Multichannel Households 1.0% 1.6% 3.1% 6.9% 12.4% 18.9% 24.6% 26.0% 27.2% 28.0% 29.2% 29.2% 32.7% 35.8% 38.3% 40.5%


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Appendix 2: DVR Forec ast


DVR FORECAST

US DVR Subscribers - Cable, DBS and Stand-Alone Units

42,658.3

40,196.1

37,341.933,826.6

29,751.624,567.4

18,570.1

935.01,460.6

2,915.76,763.8

12,231.0

-

20,000.0

40,000.0

60,000.0

80,000.0

100,000.0

120,000.0

2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E

Subscrib

ers(000s)

Total Multichannel Subscribers

Total DVR Subscribers


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Appendix 3: VOD Forecast


VOD FORECAST

US Homes With VOD Access

61,857.4

58,502.5

12,910.2

7,659.6

3,243.2

36,029.8

29,902.4

24,160.4

19,277.5

41,796.8

49,248.154,339.9

-

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E

HomesWithA

ccess(000s)


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Appendix 4: Internet Ac c ess Forecast Data

INTERNET ACCESS FORECAST

(a) Represents imp lied numb er of subscribers to d ial-up services who d o no t also ha ve b road ba nd services

Sourc e: MAGNA Globa l, US Census, FCC, Com pa ny Rep orts

Brian Wieser, CFA MAGNA Global Internet Access Forecast

MAGNA Global Director of Industry Analysis

(917) 542-7008

2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E

Total Households (Census) 112,215.0 109,608.9 111,000.0 111,545.8 113,324.5 114,738.6 115,838.7 116,835.6 117,419.7 118,006.8 119,186.9 120,378.8 121,582.6 YOY Growth 3.3% -2.3% 1.3% 0.5% 1.6% 1.2% 1.0% 0.9% 0.5% 0.5% 1.0% 1.0% 1.0%

Total Residential Broadband Access 5,067.9 10,810.5 17,099.9 25,635.0 34,843.7 43,432.4 54,772.4 63,905.5 71,221.8 74,769.1 78,615.7 82,579.8 86,664.1 % of Internet Access 10.6% 19.3% 29.1% 41.8% 54.2% 64.8% 78.6% 88.2% 95.2% 96.0% 97.0% 98.0% 99.0%

Total Narrowband Only(a)

42,623.4 45,189.5 41,619.1 35,743.1 29,439.7 23,603.6 14,875.6 8,532.5 3,574.6 3,115.4 2,431.4 1,685.3 875.4 % of Internet Access 89.4% 80.7% 70.9% 58.2% 45.8% 35.2% 21.4% 11.8% 4.8% 4.0% 3.0% 2.0% 1.0%

Total Residential Internet Access 47,691.4 56,000.0 58,719.0 61,378.1 64,283.3 67,036.0 69,648.0 72,438.0 74,796.4 77,884.5 81,047.1 84,265.1 87,539.4

Internet Household Penetration 42.5% 51.0% 52.9% 55.0% 56.7% 58.4% 60.1% 62.0% 63.7% 66.0% 68.0% 70.0% 72.0%

Net Adds 9,687.9 8,308.6 2,719.0 2,659.1 2,905.2 2,752.7 2,612.0 2,790.0 2,358.3 3,088.1 3,162.6 3,218.0 3,274.3


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Appendix 5: Internet Ac cess Forec ast

Sourc e: MAGNA Globa l, US Census, FCC, Com pa ny Rep orts

Internet Access - Broadband and Total

17,099.9

71,221.8

74,769.1

78,615.7

25,635.0

34,843.7

1,695.2

5,067.910,810.5

43,432.4

54,772.4

63,905.5

82,579.8

86,664.1

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1999A 2000A 2001A 2002A 2003A 2004A 2005A 2006E 2007E 2008E 2009E 2010E 2011E 2012E

Subscribers(000s)

Broadband Total Internet Access


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MAGNA Global

On-Demand Quarterly

Co nta c t: Brian Wieser, CFA, Direc to r of Ind ustry Ana lysisTel: 917-542-7008 Email: b rian.wieser@magna glob a l.c om

on demand quarterly - march 2008

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