Entertainment & Media Outlook 2011-2015 - PwC

www.pwc.co.nz/entertainmentandmediaOutlookNew Zealand Entertainment and media | 2011–2015Five year forecastsand commentary on:Internet accessAdvertisingTelevisionPublishingFilmed entertainmentRadio & recorded musicInteractive gamesStrengthin numbers

IntroductionWe’re excited to release our inaugural NewZealand Entertainment and Media Outlook2011-2015. In this document we explore hownew technologies are accelerating the pace ofthe “digital shift” in New Zealand and the wayentertainment and media companies in NewZealand are responding. To investigate thistheme we interviewed some industry leaders.We are pleased to share with you their views andinsights throughout this section. New Zealand ison the cusp of a digital explosion and with thatcomes new opportunities and challenges.While the New Zealand entertainment and media marketis still in recovery from the global recession, the industryis holding its ground. Revenues in entertainment andmedia grew 3 percent in 2010. This compares with aglobal growth of 5.3 percent. We expect New Zealandtotal entertainment and media market to grow onaverage 5.9 percent compounding annually to 2015,compared to 6.0 percent for global.Although we are not predicting the imminent demise oftraditional media, changes in the content and deliverylandscape are well underway. We see the shift in favourof online and digital media continuing over the nextfive years. Driving this will be the further developmentof enabling technologies such as tablet devices andsmartphones, cheaper, faster internet access and wideconsumer adoption of social media.UFB will transform the New Zealand telecommunicationsindustry, and the shift to digital services will transformNew Zealand’s entertainment and media industry. Ina double-transformation world, partnerships - withlocal and global players - will be a key strategy for allbusinesses in the sector.Kiwis are avid consumers of media. On average, NewZealanders spend eight hours a day consuming variousmedia with the majority of time spent with television,radio and the internet. Advertisers, consumers, enablersand entertainment and media companies all face newopportunities with the uptake of new technologies andthe roll-out of ultra fast broadband. Social media enabledword-of-mouth, is becoming very powerful and it will bekey for companies to participate to engage customers andemployees. The big challenge media companies now face ishow to monetise the online audience. With this increasedpace, it will be important for companies to partner withothers who can help them execute innovative ideas.We could not have written this piece without informationprovided to us by the New Zealand entertainment andmedia industry associations. We are immensely thankfulto Brett Chenoweth of APN, Andrew Stone and JoseAlomajan of Droga5, John Fellet of Sky TV and SteveJackson of TelstraClear who generously gave their timeand shared their insights through in-depth interviews forthis, our inaugural New Zealand section.The most significant developments affecting the sectorare the Government’s Ultra Fast Broadband (UFB)and Rural Broadband Initiative (RBI) programs, theswitch-off of analogue TV in 2013 and potential roll-outof 4G mobile networks. The number of New Zealandhouseholds able to access a broadband connectionis expected to reach over 1.3 million by 2015. Theseinitiatives will further drive the shift to digital, as wesee more devices, both traditional and non-traditional,becoming internet-enabled, more data stored inthe cloud and social media increasingly becomingthe way we share information and collaborate.Keren Blakey,PartnerGrant Dennis,PartnerKathryn Roberts,PartnerNew Zealand Entertainment and Media 2011-2015 | Outlook 5

What’s the impact of social mediaon APN and the industry?One of the biggest challenges withsocial media is that you can builda large audience on Facebook orTwitter, but how do you monetisethis audience? It’s relatively easyto build a large social media basedfollowing, but driving this audienceback to your online platform, whereyou drive revenue, is hard. Some ofthe businesses which are succeeding,such as the online coupon businessGrabOne, have built brands quickly byusing social media to target specificdemographics, which is where themedium’s strength lies.You’ve mentioned outdooradvertising is very strong atthe moment – why is this?Since technologies such as flat-screenpanels and other digital displays havecome into their own, we are reallyseeing advertisers embrace thesenew and exciting mediums to reachaudiences in a way they haven’t before.Rather than relying on the type of staticimages and messaging traditionally seenon billboards or posters, digital mediagives advertisers more ways to engageand draw audiences in. Because ofthis, we’re seeing companies who havetraditionally ignored the outdoor space,such as Foxtel and Audi, making use ofthe dynamism offered by new mediums.At APN, we are seeing healthy returnson our investments in this area.Another important considerationaffecting outdoor spend is theeconomic environment. When timesare good, outdoor advertising spendtraditionally increases, yet it’s thefirst channel to suffer when recessionhits. The current environment simplyreflects we’re coming out of a recessionand businesses are feeling optimistic.Outdoor advertising also supportsother mediums such as radio, print andtelevision well and so many businesseswill want to reinforce their campaignsin the outdoor space, where thereis also less audience fragmentation.Outdoor is a powerful medium to buildbrands.What opportunities do you seefrom the National BroadbandNetwork (NBN) and Ultra FastBroadband (UFB) initiatives inAustralia and New Zealand?The types of NBN/UFB initiativescoming through in Australia and NewZealand are enormously positive andoffer huge benefits for businesseslike APN. But to take advantage ofthese developments, we need to upour investments in new products andnurture a culture of innovation to getthe best out of our existing assets.In the pipeline are more interactiveservices, new business models, brandsand apps being developed. At APN, wewant to ensure we’re at the forefrontin delivering new experiences to ourcustomers.Radio is one of APN’s keychannels, what is its role inAPN’s large suite of assets?Radio is a very robust medium – it doesnot suffer material downturns in a tougheconomic environment. It’s dependable,serving up pre-packaged content to aregular and loyal audience, just likenewspapers. Yet, where advertisershave migrated from print to online,they’ve stayed with radio because it’s aresponsive and cost-effective advertisingmedium. Advertisers like reaching localaudiences and this locality is a big reasonas to why audiences keep tuning in.While sites like iTunes are havingsome impact on music radio, talkbackis still going strong and there’snothing to indicate radio’s imminentdemise. Yet, looking further aheadit will be interesting to see howdigital car radios will impact thistraditional medium. Digital radioallows more listener personalisationand it’s unknown whether thiswill lead to significant audiencefragmentation or just be anotherhuge opportunity for radio operatorssuch as APN. I am betting the latter!With the emphasis on new productdevelopment, do you see mediacompanies needing a culture shift?In a word, yes. The culture of a digitalorganisation is quite different tothat of a traditional printing-basedpublisher. Publishers who fail to makethis transition internally will miss outon new opportunities and eventually,they’ll lose the audience too. We as anindustry need to increase our metabolicrate, in other words, respond faster andnot be afraid of trying new things. Asan organisation, we do not want to “diewondering”, so it is incumbent on usto shed any conservatism and changethe way we individually think aboutour business to allow new productdevelopment to thrive.What role will partnerships play inmedia companies in the future?One of the fundamental skills ofall great media executives mustbe the identification, creation andongoing successful managementof partnerships. If you are not agreat partner, then you will fail.Partnerships will be local and global.In a fragmenting media environment,media companies must partner forcontent, technology and distribution.There will be no exceptions.New Zealand Entertainment and Media 2011-2015 | Outlook 9

MethodologyThis report draws on historicaldata from trade associations andpublications, government agencies andother industry sources. Recent trendsin industry performance are analysedand the factors underlying those trendsidentified. Factors considered includeeconomic, strategic, operational,technological, demographic, political,cultural, institutional, behavioural,competitive and other drivers thatmay affect particular entertainmentand media markets. The forecastshave been prepared in conjunctionwith Wilkofsky Gruen Associates andconsider the dynamics of each segmentin each region, and the factors thataffect those dynamics. We recogniseunforeseeable events, such as actsof terrorism or significant natural orenvironmental catastrophes, can occurat any time and affect the outlook. Butdue to their unpredictable nature, suchevents have not been contemplated inthis forecast.We provide annual growth rates forthe years 2006–15 and a compoundannual growth rate (CAGR) thatcovers the 2011–15 forecast period. Incalculations of the CAGR, 2010 is thebeginning year, with five years duringthe forecast period: 2011, 2012, 2013,2014 and 2015.The formula is:CAGR = 100*((value in 2015/value in 2010)^(1/5)–1).Models are then developed to quantifythe impact of each factor on industryspending. A forecast scenario foreach causal factor is created andthe contribution of each factor ona prospective basis is identified.Proprietary mathematical modelsand analytical algorithms are used toprovide an initial array of prospectivevalues. We rely on our professionalexpertise and institutional knowledgeto review and adjust these values, ifrequired. The entire process is thenexamined for internal consistencyand transparency vis-à-vis prevailingindustry wisdom.All figures are reported in nominalterms and include the effects ofinflation. Segment spending consists ofadvertising and end-user spending onentertainment and media content. Wedo not include spending on hardwareor on services that may be neededto access content. For example, inTV, radio, recorded music, filmedentertainment, and video games, we donot include spending on TV sets, radiosets, CD players or portable listeningdevices, DVD players, or video gameconsoles. Spending is at the end-userlevel and includes retail mark-ups whereapplicable. Advertising is measuredinclusive of agency commissionsas reported by the AdvertisingStandards Authority. All figures arepresented in New Zealand dollars.10 Outlook | New Zealand Entertainment and Media 2011-2015

New Zealand snapshotOverviewDuring the five years from 2006 to2010, New Zealand consumer magazineprint advertising revenues declinedby 10 percent and the New Zealandnewspaper print advertising revenuesdeclined by 27 percent. These figuresillustrate that for the entertainment andmedia industry, the digital environmenthas proved challenging. Yet there iscause for optimism: we have seenmodest increases in box office and instorerentals and the interactive gamessector is growing strongly. In 2010 totaladvertising revenue rose 3.4 percentand now accounts for 39 percent ofthe entertainment and media market.Spending is yet to return to pre-recessionlevels, but the outlook is good. Between2006 and 2010 online advertising forentertainment and media grew at almost300 percent and is now the third largestearner of advertising revenue in NewZealand, according to the InteractiveAdvertising Bureau (IAB).AssumptionsWe are releasing this publication as theeconomy begins to show the impact ofthe devastating earthquake that struckCanterbury on 22 February 2011. TheGDP growth forecast is an importantdriver in our entertainment and mediaforecasts. We assume that the revisednominal GDP growth of 2011 will besimilar to nominal GDP growth in 2009at the peak of the global financial crisis(GFC), which was 1.1 percent. Theearthquake represents a temporarydisruption to the underlying trend. Asthe country rebuilds, there will be arebound and return to the underlyingtrend. Historically, developed countriesrecover within two years fromdisruptions of this nature.The New Zealand entertainment and media market (NZ$ millions)Historical dataForecast dataNZ $ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015New Zealand 4,687 4,940 5,047 4,915 5,061 5,099 5,480 5,901 6,343 6,7572011-2015CAGR% change 5.4% 2.2% -2.6% 3.0% 0.8% 7.5% 7.7% 7.5% 6.5% 5.9%Australia 28,676 32,017 35,172 35,620 37,957 39,563 41,344 43,421 44,347 46,365% change 11.7% 9.9% 1.3% 6.6% 4.2% 4.5% 5.0% 2.1% 4.6% 4.1%Asia Pacific 403,324 444,856 477,624 488,666 521,607 544,341 587,901 633,441 678,203 721,290% change 10.3% 7.4% 2.3% 6.7% 4.4% 8.0% 7.7% 7.1% 6.4% 6.7%Source: PwC New Zealand, Wilkofsky Gruen AssociatesNew Zealand Entertainment and Media 2011-2015 | Outlook 11

AdvertisingMarket definitionThe television advertising market consists of spending onterrestrial and multi-channel television, TV websites andon programs streamed from TV websites. Multi-channeladvertising refers to advertising on subscription TVnetworks, for example Sky TV.Free-to-air advertising is generated by free-to-airnetworks and broadcast through analogue television,cable, satellite or Freeview services.Cinema advertising consists of revenue fromadvertisements screened prior to feature movies.Internet advertising (wired and mobile) consistsof spending on paid search, display, classified, videoand other online formats.The radio market consists of advertiser spending onradio stations and radio networks.The out-of-homemarket consists of advertiser spending on media suchas billboards, street furniture (e.g. bus shelters, kiosks),transit displays (e.g. bus sides, on-train print, taxitoppers), sports arena displays, ‘captive’ networks(e.g. in elevators) and other formats.The newspaper and consumer magazine advertisingmarkets consist of spending by advertisers on consumerprint and digital magazines and newspapers.

“The key question companies shouldask themselves is: are we dominatingthe word-of-mouth discussion?”Droga5’s Business Partner, Andrew StoneOnline alone records growthAdvertising revenue accounted for39 percent of the entertainment andmedia market in 2010. Advertisingspend is closely linked to economicperformance overall, and revenues fellalmost 12 percent between 2008 and2009, reflecting the weak New Zealandeconomy. Advertising spending is yetto return to pre-recession levels butrose 3.4 percent in 2010, partly due toincreased spending online.Interactive or online advertisingalone bucked the industry trend ofnegative growth between 2006 and2010, increasing threefold. It now sitsbehind newspapers and television asthe third largest earner of advertisingrevenue in New Zealand. The growthwill continue, predicts Droga5’s DigitalPartner, Jose Alomajan: “There will be ashift from online display and classifiedads to social advertising, and search willcontinue to grow in importance.” 7 In theUK, online advertising has overtakentelevision and newspaper advertisingand has the largest market share, butthere is scepticism about whether thiswill occur in New Zealand.Broadcasters and publishers arefollowing their audiences, and theadvertising dollar, online. Many aredeveloping advertising offerings thatcross media platforms, encompassingonline, print and mobile. One of themany group-buying websites thathave popped up in New Zealandis Cudo, launched by MediaWorksin March 2011 in partnership withCudo Australia, ACP Magazinesand Microsoft NZ. This servicedifferentiates itself by making useof MediaWorks’ radio stations,television channels TV3 and FOUR,MediaWorks websites, MSN NZ andACP Magazines. 8More advertisers will launchmulti-channel campaigns duringbig events such as the Rugby WorldCup, APN’s Chief Executive, BrettChenoweth predicts. 9Digital technology has had a hugeimpact and the television industry isone of the segments most affected.TelstraClear’s Head of ConsumerMarkets, Steve Jackson, points outthat, for instance, in a personal videorecorder world where ad-skippingis common, TV advertising is losingeffectiveness. 10 He foresees digitaloutdoor advertising will continue togrow in importance, and APN’s ChiefExecutive, Brett Chenoweth concurs,as digital screens replace the staticbillboard and attract new advertisers. 11Online advertising will also continue togrow, while radio will remain a robustadvertising channel because it is a costeffective way to reach a mass audience.Mobile advertising currently makesup only a small proportion of totalonline advertising but will increaseits share over time as smartphonesand tablets become more popular.Video is a significant part of the onlineadvertising mix in other countries andNew Zealand organisations are startingto embrace opportunities in this space.For example, Air New Zealand usesonline video advertising campaigns toshare messages and engage its targetaudience. Improved broadband accessand speed will support growth inonline video advertising.7 Jose Alomajan, Droga5, to PwC, 11 April 2011.8 ‘About Cudo’, www.cudo.co.nz, accessed 28 March 2011.9 Brett Chenoweth, APN, to PwC, 18 April 2011.10 Steve Jackson, TelstraClear, to PwC, 18 April 2011.11 Brett Chenoweth, APN, to PwC, 18 April 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 13

The New Zealand advertising market (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRTV 640 656 653 578 624 617 665 719 747 815 5.5%Multi-channel 29 31 29 26 24 24 28 31 32 33 7.1%Free-to-air 611 624 618 543 589 581 622 669 690 751 5.0%Online TV 0 1 6 8 11 13 15 19 25 31 22.4%Cinema 10 10 8 6 7 6 7 8 8 8 3.7%Internet (wired and mobile) 65 135 193 214 257 282 340 399 446 496 14.1%Search 13 33 60 78 93 100 119 138 151 167 12.4%Display, classifiedand other internet53 101 133 136 164 182 222 261 295 329 15.0%Radio 269 274 268 236 240 219 242 261 268 275 2.7%Out-of-home 79 78 74 68 69 65 69 76 78 81 3.0%Magazine and newspaper 1006 1035 971 811 783 797 817 842 872 904 2.9%Magazine print 188 194 189 165 169 172 176 181 185 190 2.3%Newspaper print 810 825 760 622 589 594 604 619 636 654 2.1%Magazine digital 0 1 3 3 3 4 6 8 14 17 43.1%Newspaper digital 8 14 19 21 22 26 31 33 38 43 14.1%Total 2069 2186 2167 1913 1981 1986 2140 2306 2419 2579 5.4%Sources: Advertising Standards Authority, PwC New Zealand, Wilkofsky Gruen AssociatesKey challenges for advertisersin a new media world1. It is much harder than 10 years ago to deliver a good product,because consumers are better informed, more in control andhave higher expectations. We now live in an entertainment andmedia driven world. We are obsessed with being up-to-date.2. New media is not a substitute for old media like TV andnewspapers. It is adding complexity. It is an ‘and and and’ world.3. It is harder to communicate consistent messages because there aremore channels; customers are more involved and online activityincreases the number of interactions. Customers still expectconsistency from brands.4. Due to the increased availability of information and increasedpower of word-of-mouth, it is even more important to betransparent to your customer.Droga5’s Business Partner, Andrew StoneSocial media platforms such asFacebook allow advertising campaignsto be targeted more effectively, andthere are predictions of huge growth inthis area. New Zealand has 1,846,020Facebook users, 12 the website claims,while according to a Nielsen survey,70 percent of the nation’s internetusers have a Facebook profile,27 percent have visited Twitter and11 percent have a Twitter profile. 13New media increases the power of wordof-mouthendorsement, says Droga5’sBusiness Partner Andrew Stone:“The importance of word of mouth incustomer decision making has increasedby 50 percent over the last couple ofyears, and every year online [socialmedia] is taking a stronger role in wordof mouth.”The key question companiesshould ask themselves, he says, is: “Are[we] dominating the word-of-mouthdiscussion?” 14 Still, reaching an audienceis only one part of the equation.12 New Zealand audience statistics, www.checkfacebook.com, accessed 10 April 2011.13 ‘1.8 million New Zealanders interacting via social networking sites’, Nielsen Media Research, www.nz.nielsen.com, 19 July 2010.14 Andrew Stone, Droga5, to PwC, 11 April 2011.14 Outlook | New Zealand Entertainment and Media 2011-2015

New Zealand has1,846,020Facebook users, the websiteclaims, while accordingto a Nielsen survey,70 percentof the nation’s internet usershave a Facebook profile,27 percenthave visited Twitter and11 percenthave a Twitter profile.APN’s Brett Chenoweth argues thatone of the biggest challenges withsocial media is that you can build alarge audience on Facebook or Twitterbut driving this audience back to youronline platform, where you make yourmoney, is tough. 15Privacy is a concern as social mediabecomes more widespread. TheEuropean Union wants companiessuch as Google and Facebook togive people more control over howtheir online habits are tracked andwhat information can be shared withadvertisers. 16 In New Zealand, pressarticles have focused on privacybreaches, particularly on Facebook;as advertising and social networkingmove to the mobile phone where aconsumer’s location can be trackedthrough triangulation, these concernsare likely to increase.“In outdoor advertising, digital media givesadvertisers more ways to engage and drawaudiences in. Because of this, we’re seeingcompanies which have traditionally ignoredthe outdoor space, such as Foxtel, making useof the dynamics offered by new mediums.”APN’s Chief Executive, Brett Chenoweth15 Brett Chenoweth, APN, to PwC, 18 April 2011.16 ‘People’s right to be “forgotten” online’, Gabriele Steinhauser, The New Zealand Herald, 6 November 2010.New Zealand Entertainment and Media 2011-2015 | Outlook 15

InternetMarket definitionWired and mobile internet access revenueconsists of fees paid by consumers to internetservice providers (ISPs) and to wireless carriersfor internet access via mobile devices, whetherprovided for a standalone service or as part ofa service bundle where the internet componentis estimated. Figures do not include spendingon entertainment content downloaded over theinternet or through mobile phones, which isincluded in the respective content chapters.

“High quality video content will be thekey driver for adoption of fibre. Othercontent-based services do not necessarilyrequire the bandwidth provided by fibre.”TelstraClear’s Head of Consumer Sales,Marketing and Products, Steve JacksonInternet access spending (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRBroadband 329 425 515 622 624 635 697 741 777 814 5.5%Dial-up 171 135 94 38 31 26 22 17 13 8 -22.9%Mobile 16 18 35 56 89 104 182 292 432 542 43.7%Internet (wired and mobile) 516 578 645 716 743 765 902 1049 1222 1364 12.9%Sources: Commerce Commission, PwC New Zealand, Wilkofsky Gruen AssociatesInternet and mobiletechnology drive spendingInternet access is a key driver ofspending in most market segments.Increased availability and speed ofbroadband services in New Zealand,along with ownership and use of newdevices that rely on broadband tofunction most effectively, are two of themost important factors contributingto growth of the entertainment andmedia industry.Dial-up internet access has declinedsignificantly as broadband connectionshave become more widespread. Thistrend will continue as the availabilityof broadband increases, particularlyin rural areas. There are currently justover a million broadband-connectedhouseholds in New Zealand, but thisfigure is forecast to exceed 1.3 millionby 2015. Mobile internet subscribersare forecast to more than treble to3.75 million over the period.High speed networktakes shapeThe Government is making a significantinvestment to increase access to highspeed broadband through its Ultra-Fast Broadband (UFB) program andRural Broadband Initiative (RBI). Theprogrammes will increase take-up anddeliver the speeds necessary to drivegrowth in other entertainment andmedia sectors.Fast broadband will enable servicessuch as online video, streaming musicand over-the-top (OTT) television,where internet content is delivered to aTV with a wireless internet connectionor device such as a game console.The Government has set aside NZ$300million for the RBI; NZ$48 millionfrom reserve funds and NZ$252 millionfrom the new TelecommunicationsDevelopment Levy. At the time ofwriting, the Government had justsigned contracts with Vodafone andTelecom to add investment worthNZ$150-200 million. 11 ‘Key points on Telecom/Vodafone proposal’, Ministry of Economic Development, www.med.govt.nz, accessed 20 April 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 17

Internet households and mobile internet subscription (millions)Historical dataForecast data2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRBroadband 0.39 0.60 0.80 1.02 1.04 1.08 1.14 1.21 1.27 1.33 5.0%Dial-up 0.69 0.68 0.63 0.34 0.30 0.27 0.23 0.18 0.14 0.10 -19.7%Total fixed line 1.08 1.28 1.43 1.36 1.34 1.35 1.37 1.39 1.41 1.43 1.3%Mobile internet subscribers 0.06 0.10 0.16 0.27 0.45 0.53 1.01 1.76 2.78 3.75 52.8%Sources: Statistics New Zealand, PwC New Zealand, Wilkofsky Gruen AssociatesVodafone has agreed to focus on buildingcell towers, giving rural householdsaccess to wireless broadband. Telecomwill focus on connecting schools to fibreinternet, linking cell towers to the mainnetwork and improving its copper-wireservices to offer higher speeds. Underthese arrangements, 97.8 percent ofhouseholds will receive a minimumpeak speed of 50 Megabits per second(Mbps) and 98.7 percent will getdownload speeds of 100 Mbps or faster.The remaining 1.3 percent will need asatellite service.Construction began in the second halfof 2011 and is expected to be completewithin six years. The Government,through its investment vehicle CrownFibre Holdings (CFH) has also enteredinto agreements to build Fibre Optics tothe Premises network to 75 percent ofNew Zealand by 2020.CFH has selected partners as follows:• Whangarei area – Northpower• Central North Island areas –UltraFast Fibre led by WEL Corp• Christchurch and surrounding areas– Enable Networks• All remaining areas – Chorus(the network arm of TelecomNew Zealand).As part of the deal Telecom’s networkarm, Chorus will split from its retailarm and list separately on the NewZealand Stock Exchange. This measureis to ensure fair access to wholesaleUFB for all broadband retailers. Thedemerger is expected to take placeby the end of calendar 2011, but issubject to a shareholder vote. TheTelecommunications (TSO Broadbandand Other Matters) Bill was passed intolaw on 23 June 2011, paving the way forthe breakup of Telecom and establishingthe regulatory environment for the ultrafastbroadband scheme. Chorus has alsoindicated that it intends to negotiatewith the Christchurch City HoldingsLimited (the owner of Enable) for up to a50 percent stake in that venture. 2Price has often been cited as a potentialinhibiting factor in UFB take up,however documents released in Marchshow CFH has reached agreementon a range of wholesale charges forconnections to the UFB network that,prima facie, appear competitive withcurrent copper based broadbandwholesale charges that shouldencourage retail service providers tomigrate customers onto the superiorperforming UFB network.Chorus wholesale UFB charges 3Product Upstream and downstream speeds Committed information rate (CIR) Pricing at commencement (excl. GST)Entry level consumer 30 Mbps Downstream / 10 Mbps Upstream 2.5 Mbps Symmetrical NZ$37.50Household 100 Mbps Downstream / 50 Mbps Upstream 7.5 Mbps down, 2.5 Mbps up NZ$55Business 100 Mbps Downstream / 100 Mbps Upstream /Premium Business*EIR = Excess Information rateMbps = Megabits per secondGbps = Gigabits per second1 Gbps Downstream / 1Gbps UpstreamPurchase CIR/EIR* in incrementsto suit customer needPurchase CIR/EIR* in incrementsto suit customer needNZ$380, plus CIR and EIRNZ$455, plus CIR and EIRSource: Telecom2 ‘Schools, hospitals first in line for ultra-fast internet’, Susie Nordqvist, New Zealand Herald, 24 May 2011.3 ‘Outline of UFB agreement between Chorus and Crown Fibre Holdings’, Telecom Corporation of New Zealand press release, 24 May 2011.18 Outlook | New Zealand Entertainment and Media 2011-2015

Fast broadband, 4Gservices to drive growthThe Government’s goal was to deliveron its UFB program within ten years,commencing in 2009. As constructionof the infrastructure and roll-out ofthese services is set to continue instages throughout our forecast periodwe expect the impact will start tohave a significant flow-through tothe market, in terms of subscribernumbers and demand for services,from 2014/2015 onwards. At this pointthe Minister for Communications andInformation Technology has indicatedthat 90 percent of businesses, aswell as schools and hospitals, will beconnected to UFB. 4Over the next five years, we forecastsignificant growth in mobile internetconnections driven by risingownership of mobile devices includingsmartphones and tablets and apotential rollout of 4G services in thesecond half of our forecast period.4G refers to the fourth stage of mobilebroadband in which networks allowmobile devices to exchange data at100 Mbps, according to the InternationalTelecommunication Union. In contrast,the 3G or third generation networkwhich now carries the services of allthree major mobile phone providersoffers data speeds of 1.4-3.0 Mbps.Price might inhibit take-up, accordingto the Commerce Commission, whichcites the cost of mobile data plans as alimiting factor in the medium term. 5The switch-off of analogue televisionservices from 2013 will allow 4Gnetworks to be rolled-out on the newlyavailable spectrum. This will enable asignificantly faster mobile broadbandservice, potentially boosting demandfor services such as mobile television.Vodafone is reportedly ‘well advanced’in its plans to build a 4G network by theend of 2013. 6The switch-off ofanalogue televisionservices from2013 will allow 4Gnetworks to be rolledout on the newlyavailable spectrum.This will enable asignificantly fastermobile broadbandservice, potentiallyboosting demandfor services such asmobile television.4 ‘Schools, hospitals first in line for ultra-fast internet’, Susie Nordqvist, New Zealand Herald, 24 May 2011.5 ‘New Zealand retail prices for fixed line and mobile services: A benchmarking comparison’, Commerce Commission, November 2010.6 ‘2014 earliest possible date for real 4G’, Nigel Horrocks, iStart Magazine, Quarter one 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 19

TelevisionMarket definitionThe television distribution market consists of revenuesgenerated by distributors of television programmingto viewers. It includes spending by consumers onsubscriptions to basic and premium channels andvideo-on-demand (VOD) and pay-per-view (PPV)services from cable operators, satellite providersand telephone companies.

“In the next five years, global competitionwill increase in the New Zealandtelevision and video market.”Sky TV’s Chief Executive, John FelletViewing increases asscreens multiplyDespite the growing number of screenscompeting for viewers’ attention,recent research shows television isstill a powerful medium, and NewZealanders are spending more timethan ever watching it – on average overthree hours a day. 17There are two large free-to-airbroadcasters; state-owned TVNZ witha 45 percent viewer market shareand MediaWorks with 18 percent.Sky TV is the major subscription TVoperator with TelstraClear offeringa subscription service via its cablenetwork in Wellington, Kapiti andChristchurch. Sky TV attracts about26 percent of the total TV audiencethrough its subscription basedchannels, and about six percentthrough its free-to-air channel Prime.Smaller, usually local, broadcastersand a racing channel, Trackside, 18account for the rest of the market.The major broadcasters already offercatch-up online video via their websites,and Sky TV recently launched its iSKYonline platform. The speed and costof data initially inhibited the growthof these services but both Sky TV andTelstraClear have agreements with ISPsand content providers which allow usersunmetered broadband access (Sky TVwith Vodafone, Orcon, Slingshot, Xnetand Farmside and TelstraClear withTrade Me, Clearnet Video and ZILN). 19Sky TV’s Chief Executive, John Fellet,has declared the iSKY service “a greatsuccess so far”, with the applicationdownloaded 75,000 times. 20 The mostwatched program to date is the USMasters golf tournament, with 8,000concurrent users.It is worth noting what NewZealander’s are watching online isoften either international content,or delivered through internationalchannels such as YouTube. The latestonline video rankings show thatGoogle-owned YouTube accounted forover half of all online videos viewedin New Zealand during February2011. New Zealand-based TVNZ andMediaWorks sites ranked seventh andeighth most popular respectively. 21Analogue switchoffapproachesIn 2010 the Government broughtforward the switch-off date foranalogue television. It will begin in2012 in the Hawkes Bay and WestCoast areas and will finish with theupper North Island in late 2013.About 98 percent of New Zealandhouseholds have a television, and ofthese just over 70 percent now haveat least one digital set. 22 By 2013 atthe latest, the remaining 30 percentwill need to choose between a oneoffpayment for a Freeview-enabledtelevision or Freeview set-top-box, orsubscribe to Sky TV or other provider.Sky TV’s Chief Executive, John Fellet,sees this as a difficult group to convert:“They are not really engaged withwatching television.” 2317 ‘How people watch: A global Nielsen consumer report’, The Nielsen Company, August 2010.18 Nielsen data as reported on the Sky Network website, www.skytv.co.nz, accessed 29 March 2011.19 ‘Sky confirms ISP partners for iSKY’, Sky Network media release, www.Scoop.co.nz, 28 September 2010.20 John Fellet, Sky TV, to PwC, 14 April 2011.21 ‘3 of 4 online users in New Zealand watch online video’, comScore press release, www.Scoop.co.nz, 31 March 2011.22 ‘2014 earliest possible date for real 4G’, Nigel Horrocks, iStart Magazine, Quarter one 2011.23 John Fellett, Sky TV, to PwC, 14 April 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 21

The subscription television market (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015TV subscription 528 565 602 655 692 718 744 793 904 9742011-2015CAGR% change 7.0% 6.5% 8.8% 5.7% 3.8% 3.6% 6.6% 14.1% 7.7% 7.1%Statistics New Zealand, Sky Network Television, TelstraClear, Freeview, PwC New Zealand, Wilkofsky Gruen AssociatesSubscription TV subscribers vs free-to-air viewers (millions)Historical dataForecast data2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRCable 0.05 0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04 0.04 -6.9%Satellite 0.68 0.71 0.74 0.76 0.78 0.80 0.82 0.86 0.86 0.87 2.3%IPTV n/a n/a * * * * * * 0.10 0.15 n/aTotal 0.73 0.76 0.79 0.81 0.83 0.84 0.86 0.90 1.00 1.06 5.0%Freeview and other n/a * 0.13 0.26 0.42 0.43 0.45 0.47 0.68 0.65 9.0%Analogue 0.79 0.79 0.65 0.62 0.36 0.35 0.34 0.30 0.0 0.0 -100.0%Free-to-air TV onlyhouseholds0.79 0.79 0.78 0.78 0.78 0.78 0.79 0.77 0.68 0.65 -3.6%* NegligibleSources: Statistics New Zealand, Sky Network Television, TelstraClear, Freeview, PwC New Zealand, Wilkofsky Gruen AssociatesPercentage of subscription TV and free-to-air householdsHistorical dataForecast data% 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRCable TV 3% 3% 3% 3% 3% 3% 3% 2% 2% 2% -6.9%Satellite 44% 45% 46% 47% 48% 48% 49% 50% 50% 50% 2.3%IPTV n/a n/a * * * * * * 6% 9% n/aSubscription TV 47% 48% 49% 50% 51% 51% 51% 53% 58% 61% 5.0%Freeview and other n/a * 8% 16% 26% 26% 27% 27% 40% 37% 9.0%Analogue 51% 50% 41% 32% 22% 21% 20% 18% 0% 0% -100.0%Free-to-air only 51% 50% 49% 48% 47% 47% 47% 45% 40% 37% -3.6%* NegligibleSources: Statistics New Zealand, Sky Network Television, TelstraClear, Freeview, PwC New Zealand, Wilkofsky Gruen AssociatesVideo-on-demand and pay-per-view markets (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRPay-per-view 12.5 12.5 12.5 12.5 11.1 9.7 9.7 11.1 9.7 9.7 -2.6%Video-on-demand n/a n/a n/a n/a n/a 1.4 1.4 2.8 4.2 6.9 n/aSources: Statistics New Zealand, Sky Network Television, TelstraClear, PwC New Zealand, Wilkofsky Gruen Associates22 Outlook | New Zealand Entertainment and Media 2011-2015

Ultra-fast broadbandand IPTVThe Government’s investment inbroadband infrastructure will fuel thegrowth of internet protocol TV (IPTV)from 2014 to 2015. This will allowonline content to be streamed directlyto the television and content providersand advertisers to interact more withviewers through functions such asonline purchasing. TelstraClear’sSteve Jackson says the next coupleof years will be interesting times asanalogue TV is switched off and theUFB network rollout continues. He seesboth as opportunities for TelstraClearto realise its vision to deliver triple-playservices (phone, broadband and TV)nationwide in New Zealand. 24Telecom looks to be following a similarstrategy. Based on a recently announcednew agreement with Sky TV, TelecomRetail will now offer SKY Direct-To-Home channels alongside their landline,mobile and broadband services. 25The portable/mobile television marketin New Zealand is still very small, but aswith other sectors in the wider industry,it will grow as mobile devices includingsmartphones and tablets become moresophisticated and widely used. Anothergrowth driver is 3D but a significantchallenge is the lack of content, whichwill likely persist for a number of years,according to PwC’s Global analysis. 26We predict 3D will not make asignificant impact in New Zealandbefore 2015.“New devices such as tabletsand internet-connected TV setscan be perceived as a threatas they are enablers for overthe-topplayers to offer contentin New Zealand. I see them asan opportunity for Sky TV todeliver content to customersin a way which addressescustomer needs.”Sky TV’s Chief Executive, John Fellet24 Steve Jackson, TelstraClear, to PwC, 18 April 2011.25 ‘Telecom Signs New Agreement With Sky Television’, media release’ Telecom Corporation of New Zealand, 30 May 2011.26 ‘3D here and now…a goose that lays a golden egg?’, PwC, 17 February 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 23

PublishingMarket definitionThe newspaper publishing market consists of spending ondaily print newspapers by readers. This includes newsstandpurchases and subscriptions as well as payments for contentdelivered to smartphones and online. Weekend editionsof newspapers are included in the daily paper totals.Consumer magazine publishing includes spending byreaders to purchase magazines via subscriptions orat retail outlets, as well as paid digital circulation,principally through downloads to tablets andsmartphones. Figures do not include licensing, or otherancillary revenues, and trade magazines are not covered.The consumer and educational book publishing marketconsists of retail spending by consumers on consumerbooks; spending by schools, government agencies andstudents on textbooks, including post-graduate textbooks;and spending on books in electronic formats (e-books).It includes library and institutional subscriptions to e-bookdatabases. Print sales include audio books. Educationalbooks do not include supplemental educational spending,administrative software or testing materials. Professionalbooks are not covered in this market.All publishing advertising revenues are included in theadvertising section.

“Digitisation is changing the mediabusiness fundamentally. The challengefor us as the owner of a diverse blendof media assets is to build and drivemomentum in our core businesses, aswell as investing ahead of the curve.”APN’s Chief Executive, Brett ChenowethDigital transition morepainful for someNewspaper publishing held upreasonably well during the economicdownturn and circulation revenueswill increase over the forecast period.Magazine circulation will edge upbut will not return to pre-GFC levels.The shift from print to digital iscontinuing but the pace of changevaries across newspapers, consumermagazines and books. The owner ofWhitcoulls and Borders New Zealand,REDGroup, went into receivership inearly 2011, citing a plunge in revenuedue to online buying at sites such asAmazon. The company said therewould be no store closures and in May2011 administrators Ferrier Hodgsonconfirmed the sale of Whitcoulls andBorders New Zealand to Farmersdepartment store owners, Ann andDavid Norman for an undisclosed sum.The two major New Zealand newspaperpublishers, Fairfax and APN, havewell established websites with largeaudiences. As is the case with onlinevideo, however, most online mediacontent is either international inorigin or delivered via an internationalchannel. Estimates suggest only 20percent of online media consumption isof domestic content, and a substantialpercentage of that is from the FairfaxownedTrade Me. 27 Subscriptionnews and magazine websites are yetto make much ground and exist onlyon a small scale; many attempts atcharging for online content have endedunsuccessfully.Social media is becoming more acceptedas a source of information. APN’s BrettChenoweth cites the Christchurchearthquake and Queensland floods asgreat examples of the power of socialmedia to report the news and the rise ofcitizen journalism. 28 Links to APN fromTwitter increased by 500 percent in thefirst 48 hours after the quake and in thedays that followed, Facebook hits soaredas people posted photos and videos.APN sent a social media editor to thecity to ensure its social media wascurrent and accurate. The challenge forpublishers is how to make informationpay in the digital environment.The arrival of e-readers and tabletdevices has stimulated the e-bookmarket. Local publishers have startedto offer more of their catalogues inthis format, and the lower cost isanticipated to drive growth in salesat the expense of print book sales.27 ‘Hold on tight as we spin forward’, John McCrone, The Press, 9 October 2010.28 Brett Chenoweth, APN, to PwC, 18 April 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 25

Tablets seen as a saviourTablet devices like the iPad have beenhailed as a saviour of the publishingindustry as they introduce the potentialfor subscription-based applications(apps). The New Zealand Heraldlaunched the first iPad news app in thecountry in 2010 and reported that bythe end of the year 10,000 iPadowners were using it each week. 29The application was awarded officialhonouree status at the 2011 WebbyAwards, warranting special mentionalthough it wasn’t in the top fiveclassified nominees. 30 Commentatorshave pointed out, however, that forpublishers, the key will be comingup with an iPad application that issuperior to most free news websites. 31Tablet devices and e-readers are alsoseen as game-changing for the bookpublishing market, although industryviews vary on what impact e-readerswill have on physical books sales, andhow soon. Since the iPad’s arrival anda reported enthusiastic take-up of theKobo e-reader, publishers have beenproducing more electronic content.New products are also being developedfor smartphones and the iPod Touch.Total circulation and advertising spending by segment (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRTotal publishing market 1,836 1,867 1,806 1,625 1,593 1,542 1,604 1,672 1,715 1,760 2.0%Total magazinecirculation spendTotal newspapercirculation spendTotal magazineadvertising spendTotal newspaperadvertising spend263 258 251 229 215 207 213 214 218 222 0.6%247 249 253 250 251 251 261 269 278 286 2.6%188 196 192 168 172 165 175 189 199 207 3.7%818 839 779 643 611 574 608 653 674 697 2.7%Total book spend 321 325 331 335 344 345 346 347 347 347 0.2%* NegligibleSources: Magazine Publishers Association, Newspaper Publishers Association, Book Publishers Association, APN, Fairfax, PwC New Zealand, Wilkofsky Gruen AssociatesPrint and digital circulation spending (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRTotal magazine circulation 263 258 251 229 215 207 213 214 218 222 0.6%Magazine print 263 258 251 229 215 207 211 213 213 211 -0.4%Magazine digital n/a n/a n/a n/a n/a * 1 1 6 11 n/aTotal newspaper 247 249 253 250 251 251 261 269 278 286 2.6%Newspaper print 247 249 253 250 251 251 260 268 275 281 2.2%Newspaper digital n/a n/a n/a n/a n/a * 1 1 3 6 n/aTotal book spend 321 325 331 335 344 345 346 347 347 347 0.2%Consumer andeducational book printConsumer and educationalbook digital321 325 331 335 343 342 342 342 340 339 -0.2%n/a n/a n/a n/a 1 3 4 6 7 8 51.6%* NegligibleSources: Magazine Publishers Association, Newspaper Publishers Association, Book Publishers Association, APN, Fairfax, PwC New Zealand, Wilkofsky Gruen Associates29 ‘On the up ... Herald readership soars’, The New Zealand Herald, 15 February 2010.30 ‘NZ Herald iPad app honoured at Webbys’, NZ Herald staff, 14 April 2011.31 ‘Feature is for book’, Karyn Scherer, The New Zealand Herald, 2 July 2010.26 Outlook | New Zealand Entertainment and Media 2011-2015

Newspaper circulation (thousands)Historical dataForecast data2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRDaily print circulation 705 700 696 667 645 620 620 615 610 605 -1.3%Daily digital circulation n/a n/a n/a n/a n/a 1 4 9 22 40 n/aSources: Audit Bureau of Circulations, PwC New Zealand, Wilkofsky Gruen AssociatesDemand for visual content is increasingin the digital world and publishingmust adapt. Video is expected to makeup most traffic on the Government’sUFB network. 32 APN’s Chief Executive,Brett Chenoweth, sees video contentas key to attracting an audience. Hepredicts video traffic will increase overthe forecast period and ultimatelymedia companies, including traditionalprint media, will need to make theirown. He does not however see APNdirectly competing with broadcasters.Rather, they will provide: “moreniche broadcasting and richerreporting of the news.” 33Publishers are becoming ambivalentabout the medium through whichthey deliver content as the boundariesbetween media blur. Mediaweb publisherToni Myers says: “We don’t considerwe deliver consumer magazines to anaudience or readership; we deliver acommunity of interest to anyone whowants to engage with that community inwhatever forum – print, online, belowthe line or in social media.” 34“Social media is great for buildinga following or targeting a specificaudience but you need a wayof driving your audience fromsocial media platforms back toyour mobile/online platform.”APN’s Chief Executive, Brett Chenoweth32 ‘ISPs at risk of being left out in the cold’, Hamish Fletcher, The New Zealand Herald, 9 April 2011.33 Brett Chenoweth, APN, to PwC, 18 April 2011.34 ‘Magazine showcase: primed & loaded’, Patricia Moore, Admedia, 1 November 2010.New Zealand Entertainment and Media 2011-2015 | Outlook 27

FilmedentertainmentMarket definitionThe filmed entertainment market consistsof consumer spending at the motion picturebox office, plus spending on rentals at videostores and other retail outlets (the in-storerental market) and the purchase of homevideo products in retail outlets and throughonline stores (the sell-through market).It also includes electronic distribution, whichconsists of online film rental subscription services,such as those in which DVDs are delivered viamail, and download or streaming serviceswhereby films are accessed via the internet forviewing on a PC, TV, tablet or other device.The figures do not include music videos orvideo-on-demand or pay-per-view (whichare covered in the section on New Zealand TVdistribution market). Also not included aremovies or other content licensed to subscriptionTV or other television content providers. Salesof beverages and refreshments in theatres arenot included. Cinema advertising revenuesare also included in the advertising sector.

Digital age bringsnew opportunitiesCinema operators and DVD rentalstores have survived the economicdownturn reasonably well, with boxoffice revenue and DVD sales andrentals all showing modest increasesthroughout the recession.In the DVD rental market, videoshops still dominate. Mail orderservices have so far failed to makesignificant inroads and the speedand cost of broadband serviceshave hindered the growth of onlinevideo-on-demand (VOD) offerings.DVDs for purchase are being adaptedto suit changing consumer demands.They can now be downloaded anddisplayed across a number of differentscreens including PCs, television,laptops and other mobile devices.In the cinema market, the switch todigital technology is expected to spurgrowth in the immediate future. Digitaltechnology will increase the range offilmed content cinemas can offer, forexample adding concerts in 3D andsporting events such as the RugbyWorld Cup.Cinema operators are upgrading theirvenues to offer 3D movies and luxuryseating for which they will chargepremium prices. Hoyts will open itsfirst premium cinema complex inHamilton in 2011; the venue includesauditorium seating designed for otheruses including conferences and privatefunctions, and a food “emporium”serving gourmet food and beverages.The company has plans to expand theconcept nationwide. 35Both subscription TV companies,Sky TV and TelstraClear, are offeringgreater video-on-demand options viatheir respective set-top boxes, MySkyHDi and T-Box. These will increase asbroadband infrastructure is upgraded.An online video-on-demand market isexpected to develop, and Sky TV’s DVDrental subsidiary, Fatso, has indicated itwill operate in this space, althoughthe new broadband network is unlikelyto have a significant impact before2014-2015. 36The film entertainment market (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRBox office 157 161 165 169 179 175 196 215 226 236 5.7%Cinema [advertising] 10 10 8 6 7 7 8 8 8 8 3.7%Physical sell-through 169 200 208 210 213 210 219 232 239 246 3.0%In-store rental 188 188 190 194 204 208 214 219 225 229 2.3%Total 524 558 572 579 603 600 638 675 699 719 3.6%Sources: Advertising Standards Authority, Motion Picture Distributors Association, PwC New Zealand, Wilkofsky Gruen Associates35 ‘Tainui, Hoyts team up for special cinema’, James Ihaka, New Zealand Herald, 2 July 2010.36 ‘Ultrafast broadband the key to Fatso expansion says GM’, Claire Rogers, Dominion Post, 28 March 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 29

Radio andrecorded musicMarket definitionThe recorded music market consists of consumerspending on physical formats – albums,singles and music videos – as well as digitaldistribution. Digital distribution consists of musicdistributed to mobile devices and downloadedfrom the internet through licensed servicesor app stores. Radio advertising revenues arealso included in the advertising section.

Industry adapts, butpiracy still an issuePhysical music sales have beendeclining for a number of years, as thetables show, and while digital saleshave grown, they have not replacedlost physical revenue. Radio revenue,however, has been relatively stable,and most commentators agree this willremain the case. “Radio is the mostrobust medium – it doesn’t spike toohigh and doesn’t fall too low,”says BrettChenoweth, Chief Executive of APN,owner of The Radio Network. 36Music industry players have not sat idleduring the switch to digital, althoughthe way songwriters and copyrightowners generate income is shifting. 37The industry has adapted to extractrevenue from new, or renewed, sources;for example, live music has made acomeback, and merchandise sales nowmake up a greater share of revenue.Falling physical record sales have madethe relationships between bands andbrands more important. Composershave shown a greater willingness to seekexposure by having their material usedin advertising, and more brands arealigning themselves with bands. 38Radio networks have followed theiraudiences online by investing inwebsites, streaming content andpodcasting. Networks are still attractinglarge audiences but increasinglypeople are turning to the internet, toiTunes and YouTube, for music. APN’sBrett Chenoweth agrees that iTunesand other internet services have hadan impact on music radio, but notestalkback is still going strong. 39He believes digital radio will not takeoff until the technology becomes morewidely available, particularly until itis included as standard in cars. Thetransition to digital radio cannot beginuntil analogue television services endand the necessary VHF bandwidthbecomes available. State-owned Kordiahas already trialled a digital service,Digital Audio Broadcasting (DAB), butthe Government has not committed toa long-term rollout of the technology.Illegal downloading of music and videocontent remains an issue. The Copyright(Infringing File Sharing) Amendment Billwas passed into law in April 2011 40 to reinin piracy. Under the new law, copyrightowners can alert ISPs to a user who isillegally downloading material. ISPswill send up to three warning letters tothe user and if the downloading doesnot stop, the copyright owner can take aclaim to the Copyright Tribunal where theinternet account holder could be finedup to NZ$15,000. If, in two years time,the law has had little impact on illegaldownloading, the Commerce Ministermay introduce harsher measures. 41The recorded music market (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRPhysical 129 114 101 94 85 76 68 61 56 50 -10.0%Digital 13 13 14 17 18 19 24 26 29 32 12.1%Total 142 127 115 111 103 95 92 87 85 82 -4.4%Sources: Recording Industry Association of New Zealand, PwC New Zealand, Wilkofsky Gruen AssociatesThe radio advertising market (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRRadio 269 274 268 236 240 219 242 261 268 275 2.8%Sources: Advertising Standards Authority, PwC New Zealand, Wilkofsky Gruen Associates37 Brett Chenoweth, APN, to PwC, 18 April 2011.38 ‘Sound: Roll over Beathoven’, Patricia Moore, Admedia, 1 February 2011.39 ‘Sound: Roll over Beathoven’, Patricia Moore, Admedia, 1 February 2011.40 Brett Chenoweth, APN, to PwC, 18 April 2011.41 ‘Copyright hurdle for fast internet’, Hamish Fletcher, The New Zealand Herald, 18 April 2011.42 ‘Internet law may catch parents unawares’, Bronwyn Torrie, The Dominion Post, 15 April 2011.New Zealand Entertainment and Media 2011-2015 | Outlook 31

InteractivegamesMarket definitionThe video games market consists ofconsumer spending on console games (includinghand-held games), personal computer (PC)games, online games, and wireless games.It includes ‘micro transactions’, or online/mobile purchases of additional game content.Hardware and accessories used to play games areexcluded. Retail purchases of games are includedin either the PC or console game categories.

The interactive gaming demographicis changing. Motion sensor consoleshave popularised family games, makinggaming a mainstream pastime.The interactive game market (NZ$ millions)Historical dataForecast dataNZ$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152011-2015CAGRConsole/handheld 49 54 57 61 58 56 60 65 68 72 4.4%Online 3 4 6 7 7 7 8 10 11 13 12.5%Mobile 25 33 43 51 60 64 75 85 92 99 10.5%PC 11 13 14 14 13 11 10 10 8 8 -7.8%Total 88 104 119 133 138 138 153 169 179 192 6.9%Sources: iGEA Interactive NZ 2010, PwC New Zealand, Wilkofsky Gruen AssociatesGames defy the downturnInteractive game sales were worthclose to NZ$140 million in NewZealand in 2010. The industry hasshown steady growth since 2006,continuing to expand throughoutthe recession even as retail sales felloverall. Most New Zealand homes havea device for playing interactive gamesand ownership is more widespread forhouseholds with children under 18. 42The interactive gaming demographicis changing. Motion sensor consoles,notably the Nintendo Wii, havepopularised family games, makinggaming a mainstream pastime. 43 Socialmedia games such as Farmville are alsodrawing in a whole new interactivegaming demographic.Contributing to growth globally isrising ownership of smartphones andmobile devices. Mobile applications forsocial games include advertising andencourage gamers to make ‘microtransactions’or use real money tobuy in-game credit or goods. This hasopened up new revenue streams forNew Zealand gaming companies. 44Local developers are also takingadvantage of the lower cost of entrypresented by online distributionchannels such as Apple’s App Store.The new potential for interactivity,and the broader appeal of 3D gamesand controller-free consoles, will drivegrowth in this market in the mediumterm. Industry commentators predicta new gaming console war will start in2012 and continue through 2013. 4543 ‘Geek’, Rebecca Stevenson, The Press (Christchurch), 23 October 2010.44 Mark Goodacre as quoted in ‘Geek’, Rebecca Stevenson, The Press (Christchurch), 23 October 2010.45 ‘Kiwi game developers spark on mobile, online’, Alex Walls, National Business Review, 4 March 2011.46 ‘Gaming brings its own rich rewards’, Matt Rilkoff, The Timaru Herald, 28 October 2010.New Zealand Entertainment and Media 2011-2015 | Outlook 33

ConclusionThe slower pace of digital growth inNew Zealand may be a blessing formany traditional entertainment andmedia businesses, allowing them tomaintain revenues longer than some oftheir counterparts overseas. It has alsoprovided a useful opportunity to watchand learn. However faster broadbandenabled by UFB and the potential rolloutof 4th generation mobile networks,alongside growth in ownership ofconnected devices will drive morewidespread use of digital services.Mobility presents an exciting futurefor New Zealand entertainment andmedia companies. It provides newdistribution channels and paymentplatforms like iTunes and other AppStores. The growth in social media alsoenables new ways for businesses tointeract directly with increasingly savvyconsumers, generating valuable insightsand driving new service innovation.These developments have thepotential to stimulate higher usageof social media, prompting furtheruse of this medium in the advertisingmix. The penetration of on-demandvideo services will also increase,accompanied by a decline in theimportance of linear programming andwith it, traditional TV advertising.That digital content and services willcontinue to grow is indisputable, buta number of questions remain; willdigitally generated revenue sufficientlycompensate for loss of revenue fromtraditional media? Will local businessesbe able to get their share of the pie orwill over-the-top players like Apple,Facebook and YouTube benefit mostfrom the adoption of digital services?UFB will transform the New Zealandtelecommunications industryand the shift to digital serviceswill transform New Zealand’sentertainment and media industry.In a double-transformation world,partnerships – with local and globalplayers – will be a key strategyfor all businesses in the sector.Mobility presents an excitingfuture for New Zealandentertainment and mediacompanies. It provides newdistribution channels andpayment platforms likeiTunes and other App stores.34 Outlook | New Zealand Entertainment and Media 2011-2015

OutlookNew Zealand Entertainment and media | 2011–2015Written and edited by:Sharma Wood, PwC, AucklandStacey Smith, PwC, AucklandMarkwin van Geel, PwC, AucklandPwC (www.pwc.com/nz),a global professional services organisation serving the entertainment and media sector and other industries.Quantitative research and analysis by:Wilkofsky Gruen Associates Inc (www.wilkofskygruen.com),a provider of global research and analysis of the media, entertainment and telecommunications industries.David Wilkofsky, PartnerArthur Gruen, PartnerPricewaterhouseCoopers LLP (www.pwcglobal.com)Marcel Fenez, Global entertainment and media leaderExternal services and data suppliers:Advertising Standards Authority (ASA)Audit Bureau of Circulations (ABC)Book Publishers AssociationInteractive Advertising Bureau New Zealand (IABNZ)Magazine Publishers AssociationNewspaper Publishers AssociationRecording Industry Association New Zealand (RIANZ)Radio Broadcasters Association Inc; Statistics New ZealandthinkTV – Responsible for promoting New Zealand’s free-to-air television industryWilliams Lea Corporate Information SolutionsAcknowledgements:PwC New Zealand would like to acknowledge the assistance provided by:Andrew Stone, Partner – Droga5Brett Chenoweth, CEO, APNJohn Fellet, CEO, Sky TV New ZealandJose Alomajan, Partner – Droga5Steve Jackson, Head of Consumer Sales, Marketing and Products – TelstraClear New Zealand.

www.pwc.co.nz/entertainmentandmediaInternet | Advertising | Television | Publishing | Filmed entertainment| Radio and recorded music | Interactive games