The economics of video-on-demand

Westminster Media Forum: Video-on-Demand, IPTV and catch-up television and the internet

9th November, 2010

David Cockram, Oliver & Ohlbaum Associates

How important will on-demand viewing be?
Linear will continue to dominate

Linear viewing will continue to be the dominant viewing type – but catch-up services may cannibalise PVR viewing

UK total television set viewing time by type, Online TV viewing by content type, 2008
2006 to 2015
Percent Percent
100% 2% 4% 1% 2% ON-DEMAND 100%
5% 7% 10% OTHER
14%
90% 17% PVR TIME-SHIFTED 90% AV
11% BROADCASTER
80% 80%
4% YAHOO VIDEO
70% 4% MYSPACE
70%

60% 60%

50% 50%
98% 96% 94% 92% 86%
40% OTHER
40% 81% LINEAR TV 70% YOUTUBE / GOOGLE
30%
30%
20%
20%
10%
10%
0%
0% ALL ONLINE AV ONLINE
2006 2007 2008 2009 2015F ACTIVITY VIEWING

Source: BARB, Broadcaster Company reports, Oliver & Ohlbaum Analysis 2

How important will YouView be?
New platforms vital for growth

Pay-TV platform and also free web-to-TV services will be crucial in driving future on-demand viewing growth

Total UK commercial PSB on-demand views by type,

2006 to 2016
Forecast
Billions
 Online PC-based viewing will mature 5
4.6
and grow only slowly as broadcaster 4.3 0.3 ONLINE CLIPS
“players” reach maturity 3.9 0.3
4
3.5 0.3
3.1 0.3 2.2
CLOSED
 Viewing through YouView and Sky 3 0.2 2.0
PLATFORMS
2.5 1.8
on-demand platforms will be crucial 1.6
0.2
in driving future on-demand usage 1.4
2 1.8
0.9
growth 1.4 0.6 0.7 0.9 WEB-TO-TV
0.2 0.7 0.2 0.3 0.5
1 0.9
0.6
0.3 0.4 1.2 1.2 1.2 1.2 ONLINE PC
0.9 1.1 1.2
0.7
0.2 0.4
0

Source: Oliver & Ohlbaum Analysis 3

How much money is being made?
New revenue or cannibalistic?

The UK PSBs should generate a combined £100 million a year from on-demand advertising by 2015 – but will this be
cannibalistic of traditional TV advertising revenues?

UK commercial public service broadcaster on-demand

advertising revenues*, 2006 to 2016
Forecast
£ (Millions)
 Will the high CPM yields currently 120 116
enjoyed by broadcasters prove 110 106
20 CLOSED
sustainable? 100 97 PLATFORMS
18
89
90 15
80 13
80 36 WEB-TO-TV
 Will CPMs for web-to-TV set 70
69 10
24
30
6 19
services and through pay-TV 60 14
9 5 5 ONLINE CLIPS
5 5
platforms be higher than traditional 50 4 5

TV CPM rates? 40 37

30 4
50 51 52 53 54 55 ONLINE PC
20 13
30
10 5 3-
1 10
- 4

*gross revenues to broadcasters after agency commission and revenue share payments to platforms and third-party syndicated websites
Source: Oliver & Ohlbaum Analysis 4
Will viewers pay for on-demand?
Limited demand

Broadcaster subscription and PPV on-demand business models have not worked to date – however, there is at least
limited demand for paid-for programming

Demand for subscription VOD and PPV programmes by

price, 2009

 Movement to PPV charging would

% likely to use catch up % likely to use catch up
double number of users services services

49p per 99p per

£5/month £10/month
 Revenue would only be increased Programme* programme*

with PPV charging rather than

Sky/VM 18% 32% 14% 30%
subscription VOD if people
purchased more than 5 programmes
Freeview /
per month Freesat
12% 27% 11% 31%

BT/Top Up 28% 36% 12% 41%

Overall 16% 32% 12% 30%

*interest in buying at least one programme

Source: Oliver & Ohlbaum Consumer Survey, November 2009 5
Who makes money?
Flow of funds

O&O forecasts that the combined UK commercial public service broadcasters will generate around £46m in 2010 from on-
demand TV, but will keep less than £20m between them

Typical broadcaster on-demand service flow of funds

Percent
 Broadcasters only retain around a 100%
third of the gross revenue 90%
34%
80%
 Underlying rights holders take 70%
around a third 60%
50% 100% 33%

 As do third-party (independent) 40%

producers 30%
20%
33%
10%
0%
GROSS RIGHTS PAYMENT BROADCASTER
REVENUE CLEARANCE TO REVENUE
PRODUCERS

Source: Oliver & Ohlbaum Analysis 6

Find out more…
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