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MARKET & TECHNOLOGY TRENDS Internet TV ‘goldrush’: Advertising revenues on track for bn worldwide Internet TV advertising could achieve revenues of up to bn worldwide by 2011, according to a new industry report from Understanding & Solutions. This equates to 18% of the Internet advertising market for that year, forecast at bn. Delivery of television content over the Internet is nothing new, with a whole host of websites across the globe providing hundreds of free TV channels, many of which are pirated or re-transmitted without permission. However, there is an Internet TV ‘goldrush’ in progress, as mainstream broadcasters, cable networks and TV content producers move their content online alongside a new raft of legitimate ‘Webcasters’ (Internet Video and TV aggregators) like Joost, Vudu and Babelgum. “The level of penetration already achieved by Internet video is mind-blowing,” says John Bird, Principal Consultant with Understanding & Solutions. “Globally, we estimate there are more than 20 billion videos being streamed across the web each and every month. In the US alone, active Internet video users are streaming an average of 55 videos per month - and this is just the beginning.” User-generated content sites, particularly YouTube, and social networking websites such as MySpace and Facebook, are well-placed to develop ‘legitimate’ TV distribution, potentially bringing audiences of millions to the entertainment industry. Meanwhile, videogame hardware vendors Microsoft and Sony are seeking to leverage their large user bases with added value online video services – Sony is also aiming to deliver HD Internet content direct to its Bravia TVs using Internet Video Link. Apple, the number one player in digital music, is intensifying its Apple TV proposition through a tie-up with YouTube; partnerships with additional major studios are also expected and will expand Apple’s range of video and TV content, including a possible film rental service. Leading file-sharing networks like BitTorrent and LimeWire are moving into the market with legitimate video content but, like user-generated sites, it will be difficult for them to reconcile the continued presence of ‘free’ (illicit) content on their usernets. Attracted by a new generation of PC-centric consumer and the phenomenal success of video sharing websites, broadcasters are also looking to gain from the anticipated growth. understand what works, it needs to establish retransmission rights and develop audience measurement techniques. Unlike music and film industries, which operate with paid-for content, television is predominantly a free-to-air market and lends itself to the Internet. The challenge for the industry will be in harnessing the power of the medium and developing the revenues through sponsorship, advertising, subscription and paid-for business models. Piracy and ‘free’ TV content on file-sharing networks will be an endemic problem faced by the emerging business, as has been the case for the music industry over the last 10 years. Clearly, Internet TV will become a crowded space and many of the would-be players are not going to survive. Most, if not all, are relying on the ‘wow factor’, but content relationships and the development of stable, measurable audiences will be the keys to success. The eventual winners will be those most able to sustain investment over the next two to three years. “Internet TV will challenge the traditional broadcast industry through rights distribution, ondemand content versus linear broadcast and the generation of advertising revenues,” says Alison Casey, Business Director Content & Services, Understanding & Solutions. “The competitive structure of the market will be under threat as new ‘Webcasters’ compete with conventional broadcast channels for audiences and advertiser money. The national boundaries which govern broadcasting today will also be challenged by the global nature of the Internet, as has been the case with e- Commerce.” Going forward, Broadband Service Providers, who are on fixed revenue models, will need to invest in more infrastructure as and when high quality Internet TV and online film distribution becomes widespread, raising issues of higher consumer tariffs and possible revenue sharing with content owners. As business models are trialled, the majority of Internet TV content will be free to users over the next one or two years, with services largely focused on the PC and handheld products. Some technical innovators and early adopters are already networking Internet TV to their primary television screens, but it will be another three years before the technology is widely-accepted as a conventional system for delivering content to the living room. Online video is growing at around 200% each year and, going forward, television will be a primary driver. Major US broadcast networks are already reporting tens of millions of streams monthly from their websites, but to build sustainable revenues the industry needs to effectively engage with consumers to 8 IFA International • Saturday, 1 st September 2007

MARKET & TECHNOLOGY TRENDS Who can ‘Do a Vizio’ in the European TV market? Bob Raikes - Meko The US TV market was rocked just a couple of weeks ago when market researcher DisplaySearch announced that not only had new brand Vizio knocked Samsung off the top spot of the US flat panel TV market, but that Funai had jumped to fourth and Polaroid moved up to fifth, so that three of the top five in this TV market are not traditional brands. This is in stark contrast to the situation in Europe where all of the top ten brands in the TV market are household names. The new brands in the US have used nontraditional channels to sell TVs. Vizio, in particular, focussed very strongly on the warehouse clubs such as Sam’s Club and Costco. By keeping costs down to a very low level and building sets in China, the company was able to offer competent products that undercut the traditional brands, sold through retailers such as Best Buy and Circuit City, by a really big margin. The advent of high brightness LCDs, which look good even in the bright lighting of these stores and the relative portability of flat panel TVs also helped. Vizio was able to build high volume quickly and drive its costs down and is now able to sell to other channels to boost volume. In Europe, although the TV market is much bigger than the US, it is much more fragmented, with different technical features needed in each country and with different sales channels and models. So far, even though many have tried, nobody has been able to drive high volume through European retailers while keeping costs down to allow profitable and repeatable business. The question that is concerning every TV product manager in Europe is, “Could it happen here?” Table 1 US flat panel TV market Year-on-Year growth by brand Brand Q1'07 Q2'07 Y/Y Growth Vizio 9.1% 12.1% 433% Samsung 13.7% 10.7% 90% Sharp 12.1% 9.1% 53% Funai (Sylvania) 6.6% 7.8% 32% Polaroid 4.0% 7.5% 118% Other 54.6% 52.8% 70% Total 100.0% 100.0% 85% IFA International • Saturday, 1 st September 2007 9

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