0

Pay DTT in Italy

Madrid, 24 April 2008

1Source: BAH Analysis

Table of contents

�Pay DTT: just another pay TV platform in Italy?

�The importance of iDTV and CAMs availability for future growth in

Italian DTT

2

Pay TV market strategy in Italy: newcomers needed a different approach from the incumbent

Main features of traditional Pay TVs Implications for operators and subscribers

Source: BAH Analysis

� Entertainment

� Cartoons

� Documentary

� News

� Sport

� …

� Major sport events

� TV first run of Movies

� TV Series

� Reality shows

� …

Pay TV Operators

Clients� Costly monthly subscription

– Fees are independent from time

spent watching TV

– Clients pay for a wide offer but are

actually interested in a small portion

of it

Multi-channel

PremiumEvents

� High TV programming costs for

maintaining the wide multi-channel offer

� Costly back-office systems for client

management and billing

– Large call-center

– Complex and expensive SMS / billing

system investments

� High acquisition costs (discounts,

decoder & installation incentives, …)

3

Mobile phone market demonstrated that a low-cost prepaid offering can boost sales, in order to reach the mass market

TargetTarget

Before 1998 After 1998

High-spender, business and niche private market

High-spender, business and niche private market

Mass market(private and business)

Mass market(private and business)

Service Description

Service Description

Subscription compulsorySubscription compulsoryPrepaid pay-per-

consumption no subscription required

Prepaid pay-per-consumption

no subscription required

PricingPricing High cost per minute High cost per minute Low cost per minute(recharges available for € 3)

Low cost per minute(recharges available for € 3)

Scratch card used to recharge mobile phones

in Italy

PenetrationPenetration LowLow High (~100% penetration)

High (~100% penetration)

Mobile Phone Market in Italy

Source: BAH Analysis

4

Mediaset identified an innovative positioning in the DTT Pay TV market, complementary to the one of the incumbent, based on the open horizontal DTT platform

Source: BAH Analysis

SUBSCRIPTIONSUBSCRIPTION

PAY PER VIEWPAY PER VIEW

FREEFREE

Ca.Ca. 1010

NATIONAL CHANNELS

30 30 –– 6060 100 +100 +

Platform Positioning

DTT

Satellite

and IPTV

Analogue Terrestrial

CO

ST

PE

R U

SE

R

5

…developing a pay-per-view offer, based on re-chargeable pre-paid smart cards

DTT Pay TV Model – Pay per View

Purchase of smart cards at shops or large distributors (like mobile phone rechargeable cards)

Card Recharge (using scratch card and/or virtual voucher)

1

3

Periodic replacement of cards after expiry date

4

2

Pre-paidsmart card

Access to pay-per-view content by decreasing the credit on the card by Set Top Box

6

In summary, low-cost pay-per-view offers advantages to both TV operators and users

� Limited Investments: Pay TV operators invest only on key premium content TV

rights, without sustaining the cost of a multichannel offering

� Simpler and cost effective customer management in respect to traditional pay-TV operators: events are purchased through a pre-paid card - which enables

to buy content “locally” with credit / debit stored in the smart card - avoiding to

implement complex billing systems

� High volumes: the low cost model has the potential to reach the mass market

Advantages for broadcasters and final users

BroadcastersBroadcasters

ClientsClients

Source: BAH Analysis

� Flexible, cheap and user friendly offer:

– No subscription

– Pay-per-consumption

– Possibility to choose only “valuable content”

– Low pricing of smart cards and flexible recharge

– Plug and Play hardware (no Sat dish, no cables, …)

7

Mediaset Premium has reached 2.5 million Smart Cards activated by December 2007 …

(1) Net data (excluding Smart Card expired in june 2007)

Source: Mediaset

Smart Cards Premium Sold (1)

(2004-2007, ‘000 Smart Cards)

Dec ‘07

Smart Card sold to Retailer Smart Card activated/recharged by clients

Active Smart Cards Premium (1)

(‘000 Smart Cards)

2,500

2,7952,574

1,436

0

Dec ‘04 Dec ‘05 Dec ‘06 Dec ‘07

8

95%

Other

5%

Advertising

Mediaset Total Revenues 2001

2,351.1 Mio/Euro

Mediaset Total Revenues 2007

3,002.1 Mio/Euro

83%

Other (including Pay TV)

17%

Advertising

… creating new value for the company

9Source: BAH Analysis

Table of contents

�Pay DTT: just another pay TV platform in Italy?

�The importance of iDTV and CAMs availability for future growth in

Italian DTT

10

IDTVs will be the driver of future DTT growth

3% 8%

71%

37%

26%

55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4Q'06 4Q'07

IDTV

STB MHP

Zapper

1.114.559431.694

Total DTT Receivers Sales

(comparison 4Q’06 vs. 4Q’07)

Fonte: DGTVi, GFK, Analisi BAH

CommentsComments

� In the last year the IDTV diffusion

experienced a boom, today more

then half of DTT receivers sold is

constituted by iDTVs

– iDTVs are the main driver for future DTT mass diffusion

� Is the set top box the only way to

grant operators and viewers,

access to pay per view content?

� In the last year the IDTV diffusion

experienced a boom, today more

then half of DTT receivers sold is

constituted by iDTVs

– iDTVs are the main driver for future DTT mass diffusion

� Is the set top box the only way to

grant operators and viewers,

access to pay per view content?

11

With the growth of the iDTV market, the Conditional Access Module is strategic for DTT pay service’s diffusion

CommentsComments

� The availability of CAMs for Pay TV reception on iDTVs is strategic for DTT diffusion:

– iDTVs will be the driver of future DTT growth

– Premium contents offering has been in Italy a key driver to increase DTT penetration

� Italian DGTVi labelling program has already delivered the first results:

– On March the 15th, the first CAM developed by SmarDTV was marketed in Italy

– In the last months, many iDTV manufacturers have ordered CAMs to be bundled with their iDTVs

� The availability of CAMs for Pay TV reception on iDTVs is strategic for DTT diffusion:

– iDTVs will be the driver of future DTT growth

– Premium contents offering has been in Italy a key driver to increase DTT penetration

� Italian DGTVi labelling program has already delivered the first results:

– On March the 15th, the first CAM developed by SmarDTV was marketed in Italy

– In the last months, many iDTV manufacturers have ordered CAMs to be bundled with their iDTVs

Conditional Access Module ILLUSTRATIVE

ILLUSTRATIVE

12

CommentsComments

� DGTVi has already certified major TV manufacturers:

– SAMSUNG

– PANASONIC

– TELEFUNKEN

– FINLUX

– INNO HIT

� The DGTVi trademark is widely present on the shelves, > 40% of the iDTV market is in the program

� Manufacturers involved in the labelling program accept to add MHP to their iDTV by the end of 2009, becoming eligible for the “full”trademark

� DGTVi has already certified major TV manufacturers:

– SAMSUNG

– PANASONIC

– TELEFUNKEN

– FINLUX

– INNO HIT

� The DGTVi trademark is widely present on the shelves, > 40% of the iDTV market is in the program

� Manufacturers involved in the labelling program accept to add MHP to their iDTV by the end of 2009, becoming eligible for the “full”trademark

iDTV trademark: only pay TV (Common Interface + CAM)

DGTVi associates will promote all DGTVi trademarks on their networks

and will not develop any commercial initiatives with companies not enrolled in the program

Under discussion…

Major TV Set requirements:

DTT Tuner for free TV,

Common Interface for Pay

TV(+ bundled CAM

options)

Italian DGTVi has issued a trademark to certify iDTVs compliancy to Pay TV through compatible CAMs