• Columbia CITI Conference • September 24 2012

• Simon Wilkie • USC Department of Economics and Gould School of Law and

Competition Economics

Over the Top Video Conference

1

• Bernstein Research Survey (2009): 35% of respondents stated that they would consider canceling a cable TV subscription within the next five years in favor of online video. • Bernstein Research Report (2009): “We believe people will continue to gravitate toward IP video because it offers a better viewing experience and more flexibility. The Internet allows rapid innovation, which we think will result in better ways to watch video.” • Why Hulu matters, The Deal Magazine, December 11, 2009: Internet delivery of video is expected to account for 80% of global video consumption within 15 years.

Cutting the Cord

1

• SNL Kagan’s Multichannel Market Trends Report (2009): SNL Kagan forecasts that providers such as Hulu will account for 7.1 million homes by 2013, and more than twice that number in 10 years. As a result, SNL Kagan projects that cable TV will experience the greatest losses, drooping from 63.2 million subscribers in 2009 to 60.7 million in 2019. • Yankee Group Survey (2010): 22% of respondents stated that they planned to spend less on their subscription TV services this year than last year. 35% of respondents stated that they would reduce their spending by eliminating premium content packages. • Yankee Group Study (2010): One in eight (12.5%) consumers will cancel or reduce their pay TV service this year

Cutting the Cord

3

• Retrevo Pulse Report (2010): 15% of respondents stated they would cancel their cable TV subscription and watch all of their shows on the Internet if cable prices increased. 17% of men and 9% of women watch most or all of their TV online. • Leichtman Research Group, Inc. Survey (2010): 4% of respondents stated that they would consider canceling their TV service in favor of watching video online – compared to 3% in 2009, and 4% in 2008. • Park Associates (2009): 900,000 U.S. homes did not pay for TV and watched TV exclusively on the internet. • Park Associates (2010): Over 25 million U.S. broadband households regularly watch full-length TV shows online, and over 20 million watch movies online.

Cutting the Cord

4

• PEW Research Center (2010): Online viewership of TV shows or movies has doubled from 16% of all internet users in 2007 to 32% in 2009. • Credit Suisse (2010): Out of a survey of 250 Netflix subscribers, about 37% of subscribers aged 25 to 34 substitute Netflix for pay TV. About 17% of Netflix subscribers of all ages are substituting Netflix for cable. • BTIG Survey (2010): A study of 1,200 multichannel TV viewers found that 5% would likely cancel their cable TV subscription in favor of internet streamed video content and TV on DVD.

Cutting the Cord

5

• In one word: Disintermediation . • Content provision has been bundled with content pipe-

λ A Comcast subscriber purchases a video package delivered over Comcast cable λ A Dish subscriber who uses Sling could watch their video package over a Comcast broadband service - λ Hence consumer could mix and match

• More intense competition for MVPD services

• New challenges for regulators – maybe old regulatory wine in a new bottle • Australian solution?

Cutting the Cord: Implications

6