Television Subscription Services - US - April 2008

• " an assessment of telecom competitors and online video and strategies to defend against them
• " the role digital technology plays in viewership patterns and consumer preferences
• " how pricing strategy impacts customer acquisition.

• " consumer attitudes towards commercials and product placement
• " consumer behavior in viewing television content
• " perception of cable and satellite companies as indicated by consumer preference and articulated in marketing campaigns.

SCOPE AND THEMES

What you need to know

Definition

Data sources

Sales data

Consumer survey data

Abbreviations and terms

Abbreviations

Terms

EXECUTIVE SUMMARY

A market nearing saturation, but still growing

Marketing bundles and packages is the norm

Add-on services and ad revenues drive sales

New ad models are necessary

Internet habits now dictate TV expectations

More younger consumers side-step traditional pay-TV

Big screens call for quality programming

A highly consolidated marketplace

Satellites grew and are poised for further growth

MVPD brands emphasize their strongest features

Yet, consumers do not truly perceive differentiation among MVPDs

Advertising

Consumer attitudes towards pay-TV

MARKET SIZE AND FORECAST

Key points

Bundling drives customer acquisition

Bigger is better

Lower cost of hardware

Market valued at $102 billion in 2007

Sales

Figure 1: Total U.S. sales of satellite and cable pay-TV services, at current prices, 2002-12

Figure 2: Total U.S. sales of satellite and cable pay-TV services, at inflation-adjusted prices, 2002-12

Subscriptions

Figure 3: Subscriptions and ARPU to satellite and cable pay-TV services, 2002-07

MARKET SIZE BY PROVIDER TYPE

Cable

Subscription and sales growth

Figure 4: Total U.S. sales of cable pay-TV services, at current prices, 2002-12

Figure 5: Total U.S. sales of cable pay-TV services, at inflation-adjusted prices, 2002-12

Figure 6: Subscriptions to cable pay-TV services, 2002-07

Satellite

Subscription and sales growth

Figure 7: Total U.S. sales of satellite pay-TV services, at current prices, 2002-12

Figure 8: Total U.S. sales of satellite pay-TV services, at inflation-adjusted prices, 2002-12

Figure 9: Subscriptions to satellite pay-TV services, 2002-07

COMPETITIVE CONTEXT

Key points

Online video

Figure 10: Ownership of device for watching online video on the home television, by age, January 2008

18-24s lead the way

Figure 11: Consumer demand for “on-demand” programming, by age, January 2008

Figure 12: Consumer demand for online video, by age, January 2008

Apple and iTunes

Telcos enter the pay-TV fray

Mobile: thank goodness for couch potatoes

Figure 13: Mobile video access, by age, January 2008

Leveraging vertical integration to create exclusive content

Addressing conflicts of interest with content providers through punitive measures

SEGMENT PERFORMANCE—OVERVIEW

Basic vs. premium vs. add-on and advertising revenue in cable provider sales

Figure 14: Total U.S. sales of satellite and cable pay-TV services, by satellite or cable provider, 2002 and 2007

Figure 15: U.S. sales and forecast of cable pay-TV sales, at current prices, by segment, 2002-08

Figure 16: U.S. cable subscriptions, 2002-08

SEGMENT PERFORMANCE—BASIC SALES FROM CABLE PROVIDERS

Figure 17: Total U.S. sales of cable basic television service, at current prices, 2002-08

Figure 18: Total U.S. sales of cable basic television service, at inflation-adjusted prices, 2002-07

SEGMENT PERFORMANCE—PREMIUM SALES FROM CABLE PROVIDERS

Figure 19: Total U.S. sales of premium cable television service, at current prices, 2002-08

Figure 20: Total U.S. sales of premium cable television service, at inflation-adjusted prices, 2002-08

SEGMENT PERFORMANCE—ADDITIONAL SERVICES AND ADVERTISING SALES FOR CABLE PROVIDERS

Figure 21: Total U.S. sales of additional services and advertising sales for cable providers, at current prices, 2002-07

Figure 22: Total U.S. sales of additional services and advertising sales for cable providers, at inflation-adjusted prices, 2002-07

MARKET DRIVERS: THE ECONOMY AND HOME THEATERS

Economy

Making use of the in-home theater

Figure 23: Penetration of HDTV, 2004-07

Figure 24: Sizes of television(s) owned, 2004-07

Figure 25: Average # of television(s) per household, May 2006-June 2007

Figure 26: Average cost of most recently purchased TV, by gender and age, May 2006-June 2007

MARKET DRIVERS: THE DIGITAL CONVERSION

Less than a year until the end of analog signals

The transition to digital in cable service

Figure 27: Pay-TV revenue, analog vs digital, 2002-06

Access to VOD rising

Figure 28: Pay-per-view and video-on-demand usage, by year, 2005-07

Figure 29: Pay-per-view usage, 2003-07

Figure 30: Video-on-demand usage, 2005 and 2007

Impact of the DVR on subscriptions and advertising revenue

DVR penetration

Figure 31: DVR ownership, by type of service, May 2006 and 2007

LEADING COMPANIES

Key points

Figure 32: Pay-TV subscriptions, by leading companies, 2006 and 2007

Figure 33: Video revenue, by leading companies, 2006 and 2007

BRAND SHARE

Key points

Introduction

Sales

Figure 34: Total U.S. sales of satellite and cable pay-TV services, satellite vs cable, 2002-12

Figure 35: Total U.S. sales of satellite and cable pay-TV services, satellite vs cable, 2006 and 2007

Cable vs. satellite: recent switches in service, and those considering switches

Figure 36: Attitudes towards switching pay-TV service, January 2008

Consumers not seeing the difference between cable and satellite

Figure 37: Consumer perception of cable vs. satellite, January 2008

Figure 38: Level of interest in who provides television service, January 2008

Subscriptions

Figure 39: Satellite and cable pay-TV subscriptions, 2002-07

Figure 40: Satellite and cable pay-TV subscriptions, satellite vs cable, 2006 and 2007

BRAND QUALITIES

Comcast

Time Warner

DirecTV

Dish

INNOVATION AND INNOVATORS

Comcast

Time Warner

DirecTV

Dish

ADVERTISING AND PROMOTION

Introduction

Adspend on standalone pay-TV service

Figure 41: Media spend to market pay-TV as an individual service, by selected brands, 2005 and 2006

Adspend on bundled pay-TV service

Figure 42: Media expenditures, by selected brands, 2005 and 2006

Satellite and telcos tackle cable directly

Television ads target specific groups

Figure 43: Xtreme Clip: Dish HD Free For 6 Months & Free DVR Upgrade, January 2008

Figure 44: Xtreme Clip: Verizon And ESPN Employees Meet, May 2007

Figure 45: Xtreme Clip: Man In Restaurant Promotes NFL Sunday Ticket, August 2007

Figure 46: Xtreme Clip: People Build Cable TV Station, March 2007

Figure 47: Xtreme Clip: Heroes, May 2007

Figure 48: Xtreme Clip: Blackboard/Free High Speed Internet Offer, August 2007

Pull marketing on CGM sites online

PENETRATION OF PAY-TV PRODUCTS

Figure 49: Incidence of pay-TV subscription, 2003-07

Figure 50: Incidence of pay-TV subscription, by age, May 2006-June 2007

Figure 51: Incidence of pay-TV subscription, by household income, May 2006-June 2007

ATTITUDES TOWARD ALTERNATIVE PRICING

Minority interested in premium-only or pay-per-show offers

Figure 52: Attitudes towards premium-only and pay-per-show models, January 2008

Majority interested in creating their own channel package

Figure 53: Attitudes towards “à la carte” TV options, January 2008

REASONS FOR NOT SUBSCRIBING

Figure 54: Reasons for not subscribing to pay-TV, by gender and age, January 2008

ATTITUDES TOWARD ADVERTISING

Did the DVR really change anything?

Figure 55: Attitudes towards TV advertising, by gender, May 2006-June 2007

Figure 56: Attitudes towards TV advertising, by age, May 2006-June 2007

Figure 57: Attitudes towards TV advertising and DVR capability, January 2008

Figure 58: Attitudes towards TV advertising and DVR capability, by age, January 2008

Attitudes toward product placement

Figure 59: Attitudes towards product placement, May 2006-June 2007

THE IMPACT OF RACE AND ETHNICITY

Key points

Asians and Hispanics lag in pay-TV subscription

Figure 60: Pay-TV penetration, by race/ethnicity, May 2006-June 2007

Blacks and Hispanics are commercial-friendly

Figure 61: Attitudes towards advertising—18-34s, by race/ethnicity, May 2006-June 2007

Figure 62: Attitudes towards advertising—over-35s, by race/ethnicity, May 2006-June 2007

Figure 63: Attitudes towards advertising—households with income under $75K, by race/ethnicity, May 2006-June 2007

Figure 64: Attitudes towards advertising—households with income over $75K, by race/ethnicity, May 2006-June 2007

Young Asians love to hate product placement

Figure 65: Attitudes towards product placement—18-34s, by race/ethnicity, May 2006-June 2007

Figure 66: Attitudes towards product placement—over-35s, by race/ethnicity, May 2006-June 2007

Figure 67: Attitudes towards product placement—households with income under $75K, by race/ethnicity, May 2006-June 2007

Figure 68: Attitudes towards product placement—households with income over $75K, by race/ethnicity, May 2006-June 2007

Source: Simmons NCS/Mintel

Black consumers tend to own more TVs per household

Figure 69: Average # of television sets owned—18-34s, by race/ethnicity, May 2006-June 2007

Figure 70: Average # of television sets owned—over-35s, by race/ethnicity, May 2006-June 2007

Figure 71: Average # of television sets owned—households with income under $75K, by race/ethnicity, May 2006-June 2007

Figure 72: Average # of television sets owned—households with income over $75K, by race/ethnicity, May 2006-June 2007

APPENDIX: TRADE ASSOCIATIONS