Does it add up?

Convergence Survey 2011

Executive Summary
“We expect convergence
to accelerate but we wish
it would start happening”

www.olswang.com 2
Introduction
Since its launch in 2005, the Olswang Convergence Survey has been tracking and
analysing the effects of convergence on consumers and on industry.

For this year’s report, we interviewed over 30 senior executives from across the technology,
media and telecoms sectors, and we commissioned YouGov to conduct an online
survey of more than 2,000 adult consumers.

Convergence means different things to different people. For our purposes, convergence
is best defined by its effects, as we have previously articulated:

“Convergence means the technological developments which result in an end-

user having much greater choice and control over his or her consumption
of content in the home and/or on the move, such that he or she decides
what to watch, when to watch it, and on what devices, rather than this being
determined by technological constraints...for us, convergence is...increasingly
about how well-informed consumers will use the functionality and content
which is available to them across the full range of devices, platforms and
services they own or receive.” 1

In this year’s report, we ask “Does it add up?” In particular does convergence deliver truly
incremental value to those whose traditional revenue streams are threatened by new
forms of distribution? And are we finally on the verge of a tipping point which will lead to
a fundamental shift to IP-based exploitation, or does this remain a distant prospect?

1
“But what do we mean by convergence?”; p.10, Converging Media: Olswang Convergence Consumer Survey 2008; “ “Convergence – a refresher”, p.2, The Penny Drops: Olswang
Convergence Survey 2009

www.olswang.com 3
Chapter 1
Devices
Certain devices are particularly associated with the adoption of “convergent” behaviour
by consumers, and as future battlegrounds for those seeking to deliver (or to control the
delivery of) content to end-users.

We asked the respondents to our online consumer survey to identify which of these
devices they currently own and/or intend to upgrade or purchase in 2011.

Consumer ownership and upgrade plans, %

Which, if any, of the following devices do you already own? And which, if any, of
the following do you plan to buy or upgrade in 2011? (Please tick all that apply)

iPhone 14%
8%
Other smartphone (e.g. Android, 22%
Symbian device or Blackberry)
8%
3%
iPad
4%
Other tablet 2%
(e.g. Samsung Galaxy Tab) 1%
Dedicated e-book reader (e.g.
Amazon Kindle)- excluding iPads
6%
and other tablet devices 4%
3D TV
1%
1%
TV set which is connected directly 5%
to the Internet 2%
Xbox 360, Playstation 3 and/or 37%
Nintendo Wii
3%
Other internet-connected device 3%
plugged in to your TV (e.g. Apple TV) 1%
Sky+ or similar personal video recorder 38%
4%
A device which allows you to watch BBC
iPlayer or another “catch-up” or “video on- 23%
demand” service on your main living room TV 2%
None of these 26%
72%
0 10 20 30 40 50 60 70 80

% currently owning this device

% planning to upgrade or buy
this device in 2011
Base: All respondents

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Smartphones are clearly gaining in adoption, with 14% already owning an iPhone (rising
to 22% among the 25- to 34-year-olds) and 22% (or 31% of that same demographic)
owning some other form of smartphone.

Whether or not 2011 proves to be the year of the iPad 2, as promised by Apple in its
recent launch event, we are confident that 2011 will be the year of the tablet. One
technologist told us that he expected to see a rapid adoption of tablet devices and
explained that some of this growth will be delivered as a result of the tablet’s ability to
reach new demographics:

“Tablets and similar devices have the potential to engage new demographics
and markets. Tablets are a good size for both portability and consumption of
content. For people who don’t like or never use keyboards, the touch screen is
a natural form of input.”

As the reach of tablets increases, so do opportunities for so-called “companion screen”

activity. Not only do tablets offer an alternative primary screen for content consumption,
they also serve as secondary devices which can be used in conjunction with a “main”
screen – for example, for communications related to main screen content or to access
additional, related content – enhancing the viewer experience.

Our poll suggested consumer appetite for companion screen activity. Just over a fifth (21%)
of 18- to 24-year-olds said they would be very likely or fairly likely to spend 99p on an app
that allows them to play along with a TV game show on a main screen.

Perhaps the best example to date of a companion screen project by a major

broadcaster is the play-along game developed by Endemol UK for the Channel 4
show The Million Pound Drop. The concept was simple, allowing people to play the
game at the same time as the real contestants were playing it in the show, which
was broadcast live in a prime-time slot. The show and the interaction were a great
success, with Endemol reporting that, over the first series’ six-day run, 3 million
games were played by viewers (ratings measurement set the overall audience of the
series at 13 million, an average of 2.2 million per episode).

As widespread IP delivery of audio-visual content finally starts to become more of a

reality than a pipedream (whether that content is delivered over a proprietary IPTV
network, or over-the-top (OTT) of proprietary networks using the open internet),
the fight for control of the living room screen is becoming even fiercer.

At the same time as TV manufacturers are rolling out their own IP-delivered services to
connected TVs, pay TV providers are embracing IP to deliver a greater range of content
to the set-top boxes of paying subscribers, new entrants are pushing “standalone”
internet-to-TV solutions, and console manufacturers are delivering an ever-richer range
of media to devices previously only really considered for their games capabilities.

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Chapter 2
Pipes
The fundamental issue of how to deliver content and services is one that continues to
dominate the industry, especially in the UK. The government needs to deliver on high-
speed broadband – and the future take-up of advanced (bandwidth-hungry) services is
dependent on this infrastructure being in place, as one TV industry executive explains:

“The backbones are not engineered for streaming simultaneous programming.

They are engineered for downloading and somebody has to pay for new
backbones to introduce a system that will give you the World Cup final
streamed to 25 million homes in the UK, never mind anywhere else.”

Hybrid networks, which use broadcast technology for one-to-many transmissions,

and IP delivery for point-to-point communications, are clearly part of the answer.

 major challenge is for service providers to offer end-to-end quality of service.

A
This plays into the strengths of both established pay TV platforms and new entrant
IPTV providers. However, telcos still have to battle to avoid being pushed into the
role of “dumb pipes”, as they seek to secure both content and consumer attention.

In the UK, the “net neutrality” debate is still nascent, but is likely to intensify as the
bandwidth bottleneck becomes more acute and as regulatory scrutiny increases.
Although some content distributors and/or rightsholders may find a commercial rationale
which justifies paying for access to the fast lane, we suspect that most will not – and
that they will instead push for regulatory protection against discrimination. Ultimately,
the consumer is most likely to pay, but the financial model for any consumer contribution
is not yet clear.

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www.olswang.com 8
Chapter 3
Platforms
Connectivity of devices is now a given, and raises the likelihood of the network
“becoming” the platform.

In the connected home, there will be more connections between different devices.
This has implications for both the distribution and consumption of entertainment
content, as well as the potential for broader applications such as consumers
monitoring elderly relatives and managing home security.

In the short term, platforms that exert end-to-end control are likely to provide the
most compelling end user experience. In the longer term, the question is whether the
gatekeepers of these platforms will exploit convergence in a way which extends their
control – and, if they do, whether this will harm innovation in the wider market.

Although apps are still gaining in popularity, they may turn out to be a temporary phenomenon:

“It doesn’t matter what the device is. I think ultimately apps are a stepping
stone towards everything being up in the cloud, connections being so fast that
you don’t need an application anymore. It wouldn’t be surprising if, within
five years, no one’s talking about apps anymore.”

In the meantime, the challenge is to manage the temptation to create an app for every
content offering or brand; the economics of the market mean that very few will become
commercially successful.

As they seek to become the default destination for their end users, social networks may
become fully fledged “platforms” in their own right.

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www.olswang.com 10
Chapter 4
TV

Take-up of connected TV is likely to be led by established pay TV operators, who will

use IP delivery to enhance, rather than replace their historic transmission systems.

 lthough we expect that adoption of connected TV services will increase significantly in

A
the UK in the coming years, cord-cutting (where existing pay TV subscribers switch to new,
cheaper platform alternatives) looks unlikely to happen at scale in the short to medium term.

Linear television viewing still dominates, while non-linear viewing is likely to remain tied
to traditional scheduled viewing for years to come. As one industry commentator put it:

“What do consumers want on top of linear? More flexibility in how they watch
their linear TV.”

The resilience of linear television is reflected in the comments of one senior executive
at a large broadcaster:

“‘Big event’ TV in the living room was still very successful in 2010 – so much
for the idea that we won’t have big groups watching together because we’ll all
be watching somewhere else. The high numbers for event-based viewing were
so high due to shows like Strictly, X Factor, the World Cup...so overall, linear
remains strong and event-based viewing within that remains strong.”

In effect, the traditional linear schedule forms a recommendation engine to guide viewing
decisions, and a significant proportion of non-linear viewing will consist of catch-up television.

It is important to remember that on-demand viewing is not just delivered by managed
IPTV or over the top (OTT) IP services. On-demand viewing experiences are also
available over other platforms and through local personal video recorder (PVR) storage
in the consumer’s home.

We asked our online survey respondents to indicate those factors which might
encourage them to watch more TV on a video on-demand basis.

Consistent with previous years’ findings, the most popular factor was the ability to
watch VOD on a TV display instead of a computer. However, very few respondents
seem intent on buying a device which enables this, suggesting that VOD-to-TV
functionality is perhaps not in itself a significant purchase-motivating factor among
many consumers. Also noteworthy are the findings that:

• 3
 6% of Sky+ and other PVR owners are not motivated to watch more (or any)
VOD because they already have sufficient choice and control through ownership
of their PVRs; and

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• 2
 0% of GB adults are simply not interested in VOD because they prefer to watch
TV on “traditional TV channels”, i.e. on a linear basis.

Connected TV solutions will continue to proliferate. These platforms provide

significant opportunities for CE manufacturers and current or would-be aggregators
of audio-visual content.

 e are positive about the concept of YouView given the range of content which the
W
platform is likely to attract and the size of the target market – although it is not a
straightforward proposition to market and the platform will need to build significant
scale quickly if it is to compete effectively with other connected TV solutions.

The methods through which consumers can navigate their way around the content
available to them on the TV will continue to be of critical importance as the adoption
of connected TV solutions increases.

“A channel can’t just publish 1,000 hours of content for the year on 1 January
and say ‘ta-da, have fun’. You need to build awareness marketing and when
you release it, it is the biggest point in demand, which means that broadcast
still has a huge role to play.”

The traditional electronic programme guide is not dead – consumers know and
understand it – but user interfaces will evolve rapidly. Other new methods of selecting
and accessing content are likely to emerge and to increase the need for regulation to
ensure fair treatment for content providers and checks on the power of the gatekeeper.

Our online poll showed the enduring loyalty of consumers to pay TV. 36% of those
surveyed identified pay TV (either premium or basic) as the form of entertainment they
would find it hardest to live without. The 45- to 54-year-old demographic is the most
wedded to premium TV (such as movies and sports channels), with 20% selecting this
form of entertainment as the one they would find it hardest to live without.

Social networks offer television companies the chance to build and monetise audiences,
and many companies are grappling with the question of how they can make the most of
a direct relationship with the audience.

“If you give people interesting insights and content about Skins on Facebook they
will want to tell their friends. We have grown our Skins Facebook group from 1
million to 2.5 million fans in 3 months without having a show on air. We will put
teaser content out there, try to make people feel involved and give them an insight
into what is coming. To date, these activities have been about brand building but,
in future, this relationship with 2.5 million fans will allow us to promote products
and services such as iTunes apps, DVD sales and, potentially, the products of
commercial partners such as fashion brands or beauty products.”

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Entertainment priorities
Please imagine that you have to cut your household spending on
entertainment and other similar activities in 2011. Which ONE of the
following would you find it hardest to live without?

25
22%

20 18%

15 14%
11%
10 9%
7%
5%
5 4%
2% 3% 3%
2%

Monthly subscription to premium pay TV channels (sports

and movie channels) from Sky, Virgin etc.

Monthly subscription to basic pay TV channels (pay TV

channels other than sports and movies) from Sky, Virgin etc.

Buying Video games

Buying Newspapers

Buying Magazines

Buying Books

Buying CDs

Buying or renting DVDs or Blu-rays

Going to the cinema

Buying music downloads on an online music store

(e.g. iTunes etc.)
Don’t know

Not applicable - I don’t spend money on any of these

Base: All respondents

www.olswang.com 13
Chapter 5
Film

The cinema has seen technological advances that have altered the theatrical experience,
in particular through the installation of digital projectors. These have allowed cinemas
to capitalise on the new wave of 3D movies and to experiment with a broad range of
“alternative content”, from football and rugby matches to opera and ballet performances.
However, for the movie industry, convergence is having its greatest impact in the way in
which films are consumed in the home.

“Technology is very much the enabler here, and there are clear shifts in
consumer behaviour. Consumers are now familiar with internet-connected
devices, and pulling down content from services like iTunes, YouTube or
wherever it might be. By having connected devices, companies are allowing
consumers to get the content on their terms, and it’s allowing them to decide
how they get content e.g. it’s a Friday night, it’s raining, and instead of driving
to Blockbuster or HMV to rent or buy a movie they will turn on the TV and get
it on-demand, so it’s really quite empowering in some ways.”

The challenge of piracy and the new opportunities in-home have brought into focus the
length of the theatrical window: should exhibitors accept a shorter window in order to
help rights holders tackle piracy and protect revenues from in-home exploitation,
or will that have the effect of shrinking the pie for everyone?

“People will pirate content which is first made available via theatrical and then
on DVD and then on TV…The only way to counteract piracy is to make movies
available when the consumer wants them, and to enable consumers to pay.”

Beyond the theatrical window, in the UK much of the current focus remains on subscription
models for in-home digital exploitation – and, in particular, on the challenges faced by
those seeking to develop compelling subscription video on-demand (SVOD) propositions,
given Sky’s exclusive subscription rights to studio content across all forms of distribution
during the first pay TV window.

Interestingly, our online poll showed considerable interest in premium VOD – paying
to see a movie at home soon after it has come out on general cinema release. Almost
a fifth (19%) of our poll base said they thought premium VOD sounded great, because
they never get round to going to the cinema these days, with this figure rising to 25%
among those respondents in households with children.

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Premium VOD
Please imagine a movie you wanted to see was available to watch at home at
the same time or very soon after it came out in the cinema – either online,
on pay TV and/or on DVD or Blu-ray. How would you react?

30%
30

25 22%
20 19%
17%
15
10%
10 7% 7%
6%
5
1% 2%
0
It wouldn’t make any difference – the cinema experience is
better than at home so that’s where I’ll always see the movies
I want to watch
Sounds great – I never get round to going (or I’ve got other
commitments which stop me going) to the cinema these days,
and I get fed up waiting for movies to come out to watch at home
(whether online, on pay TV or on DVD or Blu-ray)
I currently download unauthorised copies of movies
and this would encourage me to stop doing that

I currently download unauthorised copies of movies

but this wouldn’t encourage me to stop doing that

I’d be interested, and if it came out within a few weeks of

the cinema release I’d even thinking about paying more for
it than movies currently cost to watch at home (whether online,
on pay TV or on DVD or Blu-ray)
I’d be interested, but only if didn’t cost more than movies currently
cost online, on pay TV or on DVD or Blu-ray

I’d be interested if I could get it online

I’d be interested if I could get it on DVD or Blu-ray

I’d be interested if I could get it “pay per view” via my pay TV provider

None of these

Base: All respondents

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Chapter 6
Music

The music industry has long been ahead of the pack where convergence is concerned.
Unfortunately, it also leads the pack in the way in which its business has been and
continues to be damaged by piracy. The industry continues to search for a solution – not
to eliminate illegal use, which is clearly an unrealistic goal but, at the very least, to reduce
it to levels that provide an economic baseline for a future music industry which can afford
to invest in talented musicians and their songs. As we were told by one industry expert:

“Piracy is only demand where you don’t provide a supply.”

Many see this solution in the range of blossoming “all you can eat” services. However,
the question remains whether the numbers can add up for all those in the value chain;
while these services might deliver material revenues to record labels, it is impossible at
this stage to understand how far this is a substitute for free illegal music and how far it
replaces other ways of selling music that deliver better returns.

The exploitation of music in the digital world is a service business. Success will
increasingly depend upon delivery of a customised range of content and other services,
to suit each customer’s budget and degree of affinity with a particular act. Social media
are key to maximising this engagement; but the lessons of MySpace are clear – that
users want a social media environment with their own social experience at its core
and not something that is primarily a sales channel:

“It’s not about how you monetise units. An album might still be £9.99, but the
point is the relationship between an article and a fan. Sometimes you will give
away that music for free, sometimes you might even give a ticket away for free,
sometimes you might charge £100 for a ticket, sometimes you might charge
someone £100,000 for a show, sometimes you might charge somebody £10 for
a download but if you want the higher-quality version you might charge them
£12, sometimes you might give those people a free mix tape. It’s a relationship
thing, so it’s a variable pricing model, across all revenue streams.”

To explore consumer attitudes to this broad range of music-related activity, we asked

our online consumer survey base to imagine that they had a voucher that had to be
spent on music-related activities, and to tell us which of a range of activities they would
spend it on first. From this, it is clear that the music business today is about much more
than physical goods or electronic files.

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“An album might still be
£9.99, but the point is the
relationship between an
article and a fan”
The value of a voucher: consumers’ music preferences
Suppose you had a voucher for a set value that you had to spend on one of
the following. Which ONE would you be most likely to spend it on first?

30 28% 27% 26%

25

20

15
11%
10
5%
5 3%
1%
0
Music CDs by my favourite bands/artists

Music downloads from my favourite bands/artists

Subscription to a paid-for music streaming service

(e.g. Spotify’s premium service without any adverts)

Tickets to see a favourite band/artist on tour

Merchandise (clothing, etc.) related to a favourite band/artist

Exclusive online access to content related to a favourite band

(unreleased tracks, interviews, etc.)

None of these

Base: All respondents

The most popular responses across our base were CDs from a favourite act (28%) and
tickets to see a favourite act on tour (27%). However, this was an area where age was
a particularly relevant factor, with the 18- to 24-year-olds showing a preference for live
events (34%) over CDs (19%). Conversely, interest in CDs peaked among the 45- to
54-year-olds (34%), and only 21% of the 55-year-old and overs would first buy a ticket
to see a favourite act on tour. Gender seems to play a part here too – 32% of female
respondents selected tickets to see a favourite act on tour, compared to 22% of males.

The goal is no longer about expecting to mould consumer habits to meet the range of
products being offered by a record company, but rather, as we were told:

“Monetising consumer usage and mapping our business systems around

consumer habits is a key plank in our strategy going forward.”

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Chapter 7
Publishing

Despite some blurring, there remain two clear categories of devices fighting for market
share in the digital world: e-book readers and multi-purpose tablets. This is not a battle
to the death, and people will continue to select according to budget, personal
preference and reading habits:

“I wouldn’t [have thought it is a competition with a winner and a loser]. At the

moment, everyone [who is buying these devices] is geeky and people have both,
a tablet and an e-book reader. It is a different experience, for illustrated books and
other books where colour is important for impact, such as kids titles, you would
dump the e-reader. I think that for long-form reading, most e-book readers are
lighter and easier on the eye.”

Spending on books
Are you likely to spend more, less or about the same on each of the following
in 2011 compared to how much you spent in 2010?

Traditional
e-books
books

7% 8%
4%
18% 4%
6% 5%
54%
18% 76%

Will spend more

Will spend about the same

Will spend less

Will access but won’t pay

Won’t access

Base: All respondents

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We asked our respondents to identify whether they intended to spend more, less or the
same amount (if anything) in 2011 as they spent in 2010 on each of print and digital
books, magazines and newspapers.

For books, the results indicate a shift away from printed books towards digital consumption.
The trend is perhaps less pronounced than some recent industry announcements might
suggest. However, device ownership clearly has a role to play here, with 32% of iPad
owners and 33% of e-book reader owners expecting to spend less on printed books in
2011 – conversely, 28% of iPad owners and 46% of e-book reader owners expect to
spend more on e-books in 2011.

Spending on magazines
Are you likely to spend more, less or about the same on each of the following
in 2011 compared to how much you spent in 2010?

Traditional Digital
magazines magazines

3% 2%
8%
4%
30%
43% 14%

6% 72%
18%

Will spend more

Will spend about the same

Will spend less

Will access but won’t pay

Won’t access

Base: All respondents

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Broadly similar patterns are seen with print and digital versions of magazines as were
found in relation to books and e-books.

Magazine publishers seem enthused by the opportunities presented by tablet devices,

and by the iPad in particular. One executive told us:

“iPad is an extraordinarily good device and it must have been a hell of a shock
to all the other people who were developing tablets when they first saw it.
We know that lots of people who were due to launch tablet devices in the first
or second quarters of 2010 had to think again when they saw the iPad, as its
all round quality made them realise that what they had wouldn’t compete.”

Spending on newspapers
Are you likely to spend more, less or about the same on each of the following
in 2011 compared to how much you spent in 2010?

Traditional Digital
newspapers newspapers

3% 2%
11%
23% 4%

8% 53% 60% 22%

13%

Will spend more

Will spend about the same

Will spend less

Will access but won’t pay

Won’t access

Base: All respondents

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Some 23% of our survey base said that they simply would not read traditional
newspapers in 2011. However, on one measure, newspapers appear slightly more
resilient than books and magazines, with just 13% of those polled telling us that they
expected to spend less on traditional newspapers in 2011 (compared to 18% for each
of books and magazines).

Only 17% of our base appear likely to spend anything on digital newspaper content
in 2011. However, device ownership is again significant here, with 48% of iPad owner
and 26% of e-book reader owners intending to purchase digital newspapers in 2011.

The debate over paywalls for online publishing content continues relentlessly:

“Publishers are wrestling with new forms of distribution. They can’t charge the
same yields online as they can for print and are now spending tens of millions
of dollars on infrastructure to deliver products that they can’t monetise.
The Murdoch paywall is a precursor that shows how publishers are looking
at new models to monetise products. Whether paywalls are good or bad,
publishers need different ways to sell products – they are looking to sell
bundled products to multiple audiences.”

Given the controversial terms recently imposed by Apple for subscription-based content
services, it can be expected that publishers will increasingly look beyond Apple’s iOS
platform for compelling pay distribution platforms.

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Chapter 8
Games
Two phenomena have totally revolutionised the games industry: in the sitting room, new
control interfaces, together with easily accessible games which take advantage of these
interfaces, introduced by the Nintendo Wii (and subsequently launched by Microsoft and
Sony); and, in the hand, the smartphone, especially the iPhone. This reverses a trend of
more than three decades for games to become less accessible to “casual gamers”:

“It was games for men, made by men, shooting games or football, where you
were either kicking something or someone.”

Gamification and the use of ‘serious games’ has taken off within the military and
health sectors and has significant further growth potential.

The consumer experience must be made relevant to each platform: a console game can
not simply be ported to a small screen.

Online games revenues will surpass those from sales of packaged games in the coming
year. Games will increasingly migrate into the cloud and be delivered on a device- and
platform-neutral basis.

Zynga’s success in capturing a huge audience from the propagating power of the social
network – and in successfully monetising that audience through real world payments for
virtual goods – has been admired by many in industry:

“That people have managed to monetise buying virtual goats is something we’re
all astonished by – they have turned the whole business model on its head.”

However, whilst social media may have been embraced by many in the games industry
as the new platform, the rules of the marketplace have now changed, and games
developers will increasingly be squeezed by Facebook and others.

As the industry moves away from the traditional high-price console game release, so we
will see many more different business models adopted (or at least experimented with),
such as pay-per-level and monthly subscription:

“There are new opportunities as people figure this out; it’s about moving from
analogue pounds to digital pennies. As we try to sell to millions of people,
we move away from the old model of selling to the hardcore who spent lots of
money. So traditional publishing is under threat; spending millions of pounds
and sticking something in a shop isn’t going to work. Games are moving from
a product to a service and that will continue to accelerate.”

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To explore how business models in the games sector might evolve, we asked our online
survey respondents to indicate how likely they were to undertake a range of activities in
relation to games and apps.

Games and apps

How likely would you be to do each of the following from time to time,
assuming you had all the necessary equipment? (Selected responses)

0 10 20 30 40 50
Buy new release games for 22%
Xbox 360, Playstation 3 35%
or Nintendo Wii
38%
Spend 99p to buy a game 7%
that you can play on 9%
Facebook or another website
25%
Spend 99p on “virtual items” 6%
that you can use in a game on 8%
Facebook or another website 27%
Spend 99p on a game you can 18%
play on a smartphone (e.g. 44%
iPhone) or tablet (e.g. iPad)
35%
Spend 99p on “virtual items” 6%
that you can use in a game 16%
on a smartphone or tablet
27%
Spend 99p on an app that 11%
allows you to “play along” with 15%
a TV gameshow in real time
29%

All respondents

iPhone owners

iPad owners

Base: All respondents

With games reaching a wider audience, and online gaming and apps proliferating by
the minute, the games industry is facing the familiar challenge of how to overcome the
“tyranny of choice” now faced by the casual gamer:

“With every Angry Bird, there are a lot of dead birds. It’s discovery that’s the
problem... You can have the best product in the world but if nobody knows about
it, it will never be a success. It can’t just spread virally – that’s wishful thinking.”

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Chapter 9
Sports and gambling
Live sport remains the key driver of pay TV subscriptions and this will continue to be
the case notwithstanding the effects of convergence. Coverage of live sports events
does not translate as successfully as non-event programming to an on-demand world.
Sports rights owners continue to confront the tension between maximising revenues
from the sale of their media rights and making their sports as widely available as
possible. Whilst, for some US sports, one answer has been to provide significant
online coverage for free, this model does not translate easily into many other markets.

The approach now taken by nearly all major sports rights owners is to segment rights
by window rather than by platform.

We asked our online survey respondents to indicate how likely they would be (assuming
they had all necessary equipment) to spend 99p on a smartphone or tablet app about
a favourite sports team. This type of app appeared relatively popular in comparison to
others we put forward, with 11% of all respondents saying they would be likely to buy
an app like this, rising to 16% of males and, significantly, to 22% among current iPhone
owners and 30% among current iPad owners.

Betting apps, companion screen propositions and other interactive solutions are proliferating:

“I was staggered when Betfair got their app into the App Store and now Paddy
[Power] [and] Ladbrokes all have apps in the store for their sports books.
You wouldn’t have predicted that 12 months ago and that, to me, is a sign
that the family-facing content owners or distribution channels will start moving
into the gaming world.”

However, for many gambling companies the opportunity to expand into new regulated
territories overshadows the value which convergence currently promises to deliver.

“Online gambling in all its forms … can only grow but this will mostly be due
to territorial growth … [We] toe the line and don’t operate in the US or China,
but there are so many countries which are massive markets, and as they open
up – which is the trend – and become regulated so governments can collect
taxes, they are big opportunities for [us] and all the others.”

We also asked respondents how likely they would be to use an app on a smartphone or
tablet to spend 99p on a bet on a sports event they were watching. 10% said that they
were fairly likely or very likely to use an app for these purposes, rising to 14% amongst
males, 20% of 18- to 24-year-olds, 22% of iPhone users and peaking at 30% among
iPad owners.

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Chapter 10
Data

While many businesses see data about behaviour and preferences as a huge opportunity
for delivering new revenue, significant structural change is required to realise this value.

“Data is where it’s at. As a result, agencies like ours want people who are good
at maths as much as they want people who can build a brand campaign.”

Data capture is starting to have a significant impact on the creative process, providing
more immediate feedback and allowing some content providers to develop their product
after release to reflect consumer attitudes. A creative business knows very quickly today
whether or not it has a hit – as one TV executive explained:

“Twitter is great – with a new show you know within five minutes if you have
a huge hit or a huge problem.”

Social networks, and Facebook in particular, provide real opportunities for content owners
to build defined audiences around their content, allowing a one-to-one relationship to be
developed and exploited in a manner which was not previously possible.

Although the technical challenges should not be underestimated, the biggest barrier to
those seeking to drive value out of audience data is privacy. We asked our respondents
to consider whether they would be willing to share data about themselves, either on a
personally identifiable or anonymised basis, in return for one or more of a list of possible
“benefits”. On the whole our respondents appeared unenthused, particularly if they were
required to share personally identifiable data such as names and contact details in return
for a particular benefit (and, of course, this form of data offers the greatest potential “value”
to the provider of the benefit).

Many companies want to be portrayed as being on the right side of the moral debate
about privacy. While this is understandable, the true value in data will only be unlocked
when data-rich businesses have the courage of their convictions and educate their
customers about the potential upside to data sharing, for industry and consumers alike.

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Trading data for benefits
Would you be prepared to give a company information about you or
your household if, in return, the company gave you…

Willing to share Willing to

Benefit anonymised share personally
behavioural data identifiable data

Exclusive offers on products you’re interested

in (eg, a 15% discount this weekend at your 23% 12%
favourite store)

Access to advert-free TV programmes, movies or

music services, where you’d have to watch/listen to 14% 7%
adverts if you didn’t share personal information

An exclusive track from your favourite artist

8% 3%
or band

Free access on your iPhone (or other smartphone)

or iPad (or other tablet device) to a game you really 7% 4%
want to play, or free “credits” to use in that game

Free access on Facebook or another social

network to a game you really want to play, or free 6% 3%
“credits” to use in that game

Recommendations on music, TV programmes or

movies you might want to watch, based on what 6% 2%
you have listened to or watched in the past

Customised adverts when you watch TV

programmes, movies or listen to a streaming
5% 2%
music service, so you are only shown adverts for
products you are likely to be interested in

Customised adverts on other websites, so you

are only shown adverts for products you are likely 4% 2%
to be interested in

None of these 52% 66%

Don’t know 12% 12%

Base: All respondents

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About the authors

Matthew Phillips
matthew.phillips@olswang.com

Matthew is a technology-focused commercial lawyer who acts for a wide range of media,
communications and technology clients. Matthew specialises in broadcasting and digital
media work, advising on agreements for the launch, transmission and distribution of
linear and interactive channels and services, and he has been recommended by one of
the leading legal directories for his “commendable knowledge of emerging technologies”.
A self-confessed gadget freak, he advises on the commercial and legal implications of
convergence for a number of leading UK and international broadcasters, rightsholders
and platform operators, as they seek to exploit content and services on new devices and
via new distribution methods.

John Enser
john.enser@olswang.com

John provides commercial and regulatory advice to clients active in all aspects of the
media and communications business, particularly those offering music and video content
via digital platforms, whether TV, web or mobile. His clients include record companies and
broadcasters as well as ISPs, portals, software developers, suppliers of interactive TV
technology, football clubs and mobile operators. John writes and speaks regularly on a
range of topics relating to interactive media and both of the independent legal directories
rank him as one of the UK’s leading practitioners in e-commerce and digital media.

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www.olswang.com 31
For further information please contact:

John Enser
Partner
+44 (0) 20 7067 3183
john.enser@olswang.com

Matthew Phillips
Partner
+44 (0) 20 7067 3167
matthew.phillips@olswang.com
www.olswang.com

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