Creating Value in a Transforming Communication Creating Value in a - - PowerPoint PPT Presentation

Creating Value in a Transforming Communication Creating Value in a Transforming Communication Environment

Support For Discussion December 2010

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Agenda

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Our ideas of the future WebTV – A web 2.0 phenomenon fragmented, halfhearted and under-exploited

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under exploited

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1 SHAPING TRENDS

Major shaping trends in entertainment and communication are transforming today's landscape

CUSTOMER NEEDS & EARLY INDICATORS TECHNOLOGICAL TRENDS

• Ubiquitous broadband access

B d idth i b d

• Personalization –

TiVo

• Bandwidth in abundance
• Vast intelligence and storage

capacity on devices and in t k

COMMUNI- CATION AND ENTER-

• Mobility –

iPod

• Accessibility –

networks

• Full mobility / portability of

digital content

TAINMENT 2020

Blackberry

• Availability –

iTunes

• Convergence of networks (IPv6)
• Simplicity –

Google

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1 SHAPING TRENDS

As a result five core trends are shaping the communication market

CONSUMER BEHAVIOR

• Consumer spending on entertainment/media is growing
• Internet and video-based segment is developing rapidly

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• Leisure activities increasingly shifting online
• Interactivity, personalization and user-generated content are key drivers

ONLINE 2 ADVERTISING

• Traditional advertising markets are showing few growth prospects
• Strongest growth segment is online
• Free-TV broadcasters are forced to grow in areas other than advertising

3 COMPETITION

• Free-TV broadcasters and major content brands are aiming for direct

customer relationships and pushing Pay-TV and on-demand services

• Competition is emerging on the platform side too likewise driven by DSL

Free TV broadcasters are forced to grow in areas other than advertising

4 IPTV

• DSL will continue to establish itself as a fully-fledged TV infrastructure; still,

the market for IPTV remains relatively small

• Competition is emerging on the platform side, too, likewise driven by DSL

as the new TV infrastructure

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4

the market for IPTV remains relatively small

• However, for access providers IPTV will quickly become a hygiene factor

4

1 SHAPING TRENDS

Competition over share of wallet and time is increasing – Need to act now to stimulate growth

SHARE OF WALLET

Structures are breaking up:

SHARE OF TIME

Media offer is changing:

NEED TO ACT NOW

Structures are breaking up:

• Traditional providers of infrastructure

(cable, DSL) offer own premium packages F TV b d t l hi Media offer is changing:

• Growing number of TV channels due

to digitalization

• Increasing use of Internet for

t t i t

• Free-TV broadcasters launching pay

channels

• Independent on-demand platforms

are emerging N DSL TV i f t t ith entertainment: – Online communities – User-generated content – Online videos

• New DSL TV infrastructure with

growing IPTV offering C Consequences:

• Duopoly in TV (free, pay) is breaking

up Consequences:

• Media use patterns are changing
• Increasing competition over

customer media time

• Actively secure core

business

• Capture new growth areas

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• Increasing competition over content

and customer budget

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1 SHAPING TRENDS

We are convinced that traditional media players will struggle when confronted with new entrants

PREDATION STRATEGIES… … ARE A THREAT FOR TRADITIONAL MODELS

> Predation consists of selling a product at a price below variable

• costs. The competitors are quickly driven out of the market.

> When variable costs are very low or inexistant, predation strategies are easily implemented and do not leave a chance to competitors

> Actors who are dealing with predation strategies and networking effects are doomed to disappear in the long run

competitors. > Once the predator becomes the leader he can start making

• profits. Entry barriers are so high that his monopole is

established.

doomed to disappear in the long run. > Most traditional telecommunications actors adopt strategies that are the

• posite of predation. They manage

announcers' readers' and audience's

…STRENGTHENED BY NETWORKING EFFECTS

announcers , readers and audience s rights and want their profit margins to remain steady. > Growth is limited. These actors depend

• n announcers and on rights' holders

> Three virtuous circles are used in order to capture market share: > First virtuous circle: a customer follows other customers > Second virtuous circle : competition between "suppliers"

• n announcers and on rights holders.

> Third virtuous circle: development of platforms that make it possible to do business on one's own

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1 SHAPING TRENDS

The development of predation models will deeply alter market structure and rules

Key stakes in media market

1 For actors who

manage content: reach a critical size

• Portfolio's size, value and exlusivity are essential in order to survive, to find a

place in this new environement, to negociate and fight against predators, or even act as one.

• Only actors whose size is big enough can survive

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For telecommunications

• Beyond content, value is also created in customer relationship management,

which is essential in order to reach to the client, to develop the relationship with him, to sell him a service and to successfully sell audience afterwards

telecommunications

• perators: find their

natural place

to sell him a service and to successfully sell audience afterwards.

• Traditional media actors are weak on this point because they did not evolve early

enough and keep calling their customers an audience.

• Telecommunications and Internet actors are early adopters of this trend and are well

ahead of their peers

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Find a way to finance future

ahead of their peers.

• Dilemma between network providers and new media operators. Google is one of

the biggest questions

finance future networks

• Network providers are moving backwards to finance future networks and do not

need them yet. New media operators, especially Google, are in need of future networks and have started to finance them.

Source: Roland Berger 7

1 SHAPING TRENDS

Brands act as magnets for assigning the future business

Brands provide

• rientation and a USP

Who provides consumers with crucial "brand"

• The broadcaster
• The series, the film (also continuations, if applicable)
• The genre
• The program slot
• The director, actors, the author, the producers

Brands produce availability Genres, titles and actors come to the fore as a result of search & recommendation tools at EPG, hard disk recorders and VOD platforms Brands are aggregators New portal brands such as maxdome and Joost, which simultaneously, establish a gg g p , y, direct customer relationship are taking root Brands drive the business model

• An anchor toward the customer – more so as a billing function, infrastructure

platform etc business model platform, etc.

• New brands are new players
• However, the half lives of brands are becoming shorter and shorter

Brands attract Experience in advertising marketing can be transferred to new advertising platforms

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Brands attract advertisers Experience in advertising marketing can be transferred to new advertising platforms

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1 SHAPING TRENDS

In the TV business, branding is characterized by a high level of "freedom of choice" and "reconsideration frequency"

Fast food Air travel

High

VIDEO GAMES

Internet Soft drinks Fast food Trains Sugar Coffee Fruit

GAMES

TV

Reconsideration frequency

Soft drinks Gas stations Cigarettes Supermarkets M il d Mobile phones Credit cards Fixed net Mail order Newspaper Healthcare Banks Cars Insurance Energy Porcelain

Low

"Throughput" Speed inflow/outflow of people through the brand user base

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Freedom of choice Low High Low

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1 SHAPING TRENDS

The Internet is growing in importance – Consumers believe that TV will grow less strongly

"In ten years time, how important do you think each

• f the following will be?"

Comments I t t t t d l M i t t [%]

• Internet set to develop

most strongly – 96% of respondents think it will grow in importance Less important [%] More important [%] Internet Cell phones

21 79 66 17

1 1 96 87

Slight drop in importance Strong drop in importance

• Despite new competition

from VoD, Video/DVD will continue to gain ground according to just under 50% f d t p PC/video games Video/DVD TV

32 23 36 15 21 30 14 9 4 2

– 18 11 66 47 44

50% of respondents

• TV is the only traditional

medium set to grow in importance – other TV Teletext Radio Newspapers

23 12 11 9 21 6 6 4 9 27 19 28 16 6 2 3

43 22 34 18 17 13

traditional media stand to lose out, especially books and movie theaters Newspapers Magazines Books

9 9 8 4 3 3 28 30 36 6 5 15

34 35 51 49 13 12 11 9

Slight gain in importance

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Basis: 1,002 respondents (aged 14-49 years) Remaining values (total 100): "no change", "don't know", question not answered

Movie theaters

6 3 34 15

49 9

Strong gain in importance

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1 SHAPING TRENDS

Consumer expectations: Lower prices, more content, new services

Extra content, from feature films to niche content

CUSTOMER

Content P i &

• Better prices via bundling
• Single bill
• Single provider
• On-demand offers
• Program information (EPG)
• Search and recommendation

functionality

Price & convenience Services

Single provider functionality

• Communication services
• etc.

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1 SHAPING TRENDS

As a synthesis, significant shift in market power and market value will produce fundamental and lasting changes in the media industry

Power Shift Value Shift

Consumer active

Advertising Time-shift TV Interactive Services

Content Provider

Control

passive

Advertising Format Broadcast TV Film

Network Consumer Device

Infrastructure

Content Screen

Customer Relation Shift of control and intelligence from network / content provider to end-user device / consumer Shift of customer relation from content

• wner to screen owner, and thus shift of

advertising appeal

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1 SHAPING TRENDS

There are three lines of attack in the development of future business designs to exploit the growth potential of the media market market

Customer : Establish a solid and individual view of the customer in order to

Customer Leverage

purposefully build up customer relations through greater personalization and relevance

C t t L Customer Leverage

ue Growth

Content : Market suitable contents (high level

• f relevance, exclusivity, etc.) via

different access paths (print, TV,

Content Leverage B d L

Valu

different access paths (print, TV, Internet, mobile phone, billboards, etc.) Brand :

Brand Leverage

Existing Business

Brand : Use existing brands to exploit additional sources of revenue via cross-branding and cross- marketing

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Potential Exploitation

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1 SHAPING TRENDS

Three additional value levers for providers emerge for content players and network operators

NEW

• Revenue from access (for network and platform operators)

Value levers

NEW REVENUE AREAS Revenue from access (for network and platform operators)

• Revenue from premium content (exploiting “long tail”) and premium

services (EPG, interactivity, forums etc.)

• Advertising revenue (for network and platform operators)

Size does matter

NEW MARKETING REACH

• Extra advertising reach
• Better advertising efficiency (sharper/profiled target groups, impact

measured more accurately)

Reach is the critical success factor

REACH measured more accurately)

• New, more direct advertising formats (cross-promotion, cross-media,

interactive, context-based) NEW Di t (TV) d t d d ( t k) t l ti hi NEW CUSTOMER RELATION- SHIPS

• Direct (TV) and extended (network) customer relationships
• New powerful lever for boosting customer loyalty (network, TV

channel brand)

• Platform for customer profiling and context-based offers (advertising,

products cross-promotion)

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products, cross promotion)

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1 SHAPING TRENDS

B2B and B2C environments are very different in speed and ways of transforming

• Mix of "personalized" blocks and custom-

made offers B to B

• Catalog of public mass-market offers

B to C Marketing made offers

• Segmentation by size, sector, number of

sites…

• Differentiation through services
• Management of key large accounts
• Segmentation by profile of

usage/consumption

• Pricing benefit
• Ad hoc targeting of high value / community /
• Mix of direct sales / indirect sales
• System of Incentives for sales force
• Capillarity of the distribution and multi-

channel management

• Compensation plan for distributors

g g g y Price sensitive Distribution

• Quality of leads management and of commercial

System of Incentives for sales force

• Decision, influence and purchasing unit
• Performance of face to face sales pitch

Compensation plan for distributors

• Purchasing and behavior in consumption
• Efficiency of message and advertisement
• Management of incoming contacts
• Quality of leads management and of commercial

proposals

• High level negotiation
• Time allocation of sales personnel
• Management of incoming contacts
• Pedagogy and democratization
• Productivity of retail outlets

F t t ffi ti

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Technology

• Leads generation
• Functional / standardized devices
• Security
• Foot traffic generation
• Personalized devices
• User friendliness

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1 SHAPING TRENDS

Advertising is developing towards connecting companies to final users, and enabling transactions, through value-added services

Internet revenues model: expected trends for Yellow Pages

Customers

(i e advertisers)

Customers

(i e advertisers) Make Information available to market Do business Information-driven Model Transaction-driven Model

• Information must be

interactive and make sers acti e part of

Traditional

(i.e. advertisers) (i.e. advertisers) Process a a ab e o a e

Fulfil orders Offer goods & services

users active part of the process

• The transaction

Traditional media New media

Process information Seek Information

Buy/Interact Seek

engine will be the core system and will maintain not only the bulk of information

Final-Users Final-Users

Seek Information Buy products/ services Seek Information

previously managed by the company but also transactions logs

Source: Roland Berger Analysis

CPM based CPC/CPA based

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1 SHAPING TRENDS

Although advertising is still dominated by CPM models, CPC/CPA ads are expected to become prominent in the medium term

Awareness Consideration Conversion Advertising goal Campaign Type

Brand Brand Response Direct Display Direct Text

Definition

Display advertising with awareness and engagement goals Display advertising with combined brand and direct response goals Display advertising with direct response goals Text advertising with direct response goals

Medium term Current media share

10% 60% 38% 2%

market Share

30% 60% 10%

Parc CPM Mix of CPM and CPC/CPA Parc CPC/CPA

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1 SHAPING TRENDS

On the French market, Google and PagesJaunes are clearly dominating the online advertising market

Online advertising market [France, M€] Online advertising market per actor [2009, France, M€]

1.582 1 439

700

National advertising Local advertising

[ , ] [ , , ]

132 516 531

1.439 1.157

500 600 108 124 132 255 370 457

Display 855 614

300 400 95 255

Search Classified Display 919 799 592 390 273

86 100 200

Source : Zenith Optimedia 2009/03 ; Companies data, Precepta Xerfi, 2009 18

2009 2008 2007 2006 2005

1 SHAPING TRENDS

Google has developed a very resilient business model based on ubiquity for users and on ROI optimization for advertisers

Google products and functions

B2B2C COMPONENTS B2B COMPONENTS

ADVERTISING REVENUES AS A CONTENT PROVIDER

> Sale of sponsored links based of keywords / Content research

ADVERTISING SYNDICATION FOR PUBLISHERS

> Insert of targeted advertising on third party sites: targeted contextual advertising based

MAIN REVENUE

– targeted contextual advertising based

• n sites contents

– targeted behavioral advertising based

• n internaut's historical connection /

usage data – Displays on unsold inventory

MAIN REVENUE SOURCES ADVERTISING REVENUES AS SERVICES PROVIDER

> Targeted advertising banners in services proposed to internauts – Gmail (mail): on the right side of the

STICKINESS AND MARGINAL REVENUE

screen – Google maps: geo location of centers of interests

FREE B2B SERVICE PROVIDER TO WEB PLAYERS SOURCE INDUSTRY

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> Statistical tool for monitoring traffic, and connection profiles (time, location...): Google Analytics

INDUSTRY SUPPORT

G l i f t ith t t t ff h th

1 SHAPING TRENDS

Google is on many fronts, with a strategy to offer much more than CPC-based, e-commerce/e-media-oriented ads: more growth and competition ahead

OFFENSIVE IN DISPLAYS; THE LARGEST MARKET OFFENSIVE IN MOBILE; THE NEXT FRONTIER

• Acquisition and advertisers solutions for ads
• New valuable opportunity:

Acquisition and advertisers solutions for ads serving

• Leverage on Google ads sourcing capabilities and

ads serving network – self-help, simple online interface – ads exchange M i i l k f i h Y T b New, valuable opportunity: – fast growth in access – convergence with Web – higher penetration of phones than PCs – targeting data available – "always-on" F h l l

• Main issue: lack of own inventory, hence YouTube
• Fourth level
• Tresfold strategy:

– products: specific, then convergence, then embedded/AdMob ~80-90% market share in sponsored link in France

• Ads sourcing
• Localization: a bridge between fixed internet and

mobile devices

• Partnership in June 2009 with NRJ and Spir to

use their local sales forces (700 and 300 salesmen) Ads sourcing

• Technology
• Reach (search

and content) Uptake UGC Traffic Advertisers Technology (web + ads serving)

OFFENSIVE IN VIDEO THE OFFENSIVE IN LOCAL ADS THE

salesmen)

• Launch Google local Business Center to enable

Business entity to be easily located

• Launch of "Local News" on Google News to get

access to local information Technology (web ads serving) Monetizable content (i..e Premium) Need for partnerships (cf. Lagardère)

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OFFENSIVE IN VIDEO; THE FASTEST GROWING SEGMENT OFFENSIVE IN LOCAL ADS; THE PATH TO BRICK & MORTAR

PRIORITIES IN TELCO 2

Different TelCo incumbent topics show four highly interdependent issues

• Growth can only be achieved via
• Increasing competition price

G th C t

Growth can only be achieved via investments in infrastructure, emerging markets or other business areas (e.g. Media)

• However, regulatory environ-ment

needs to be favorable to make Increasing competition, price pressure, regulatory issues, scope

• f technology/infrastructure invest-

ment and evolvement of FMS all call for a close eye on the cost side for all TelCos

1 2

Growth Costs

needs to be favorable to make investments pay off

• However, cutting costs not a

sustainable means in the long-run

• Example: VF – Investm.

in emerging markets vs.

• investm. in fixed

Regulation Technology/ Infrastructure

• Without appropriate regulatory

framework (e.g. regulatory holidays), investments do not pay ff d t titi f idi

• Increasing competition and contin-

uous technological development "force" TelCo incumbents to invest i t h l /i f t t

4 3

• BB for everybody
• ff due to competition free riding

the new network infrastructure (LLU, network neutrality)

• Regulatory holidays therefore

important means to secure the in new technology/infrastructure

• Hypothesis: Recreation of a network

monopoly as means to control competition and to secure investments – NGN

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investment that actively needs to be managed (e.g. by lobbying)

• Example: USA
• Example: NTT – Recre-

ating network monopoly through NGN design

21

PRIORITIES IN TELCO 2

Three options for growth identified – "Getting more of the cake" to respond to decreasing share of PDI spent on Telco services

Growth Costs Regul. Tech./ Infrastr 1 Infrastr.

Growth options Implementation horizon Drive the consolidation game (predator vs. prey) Go to growth/ emerging markets (e.g India, Indonesia, Turkey))

1 2

Short- to mid-term Short- to mid-term Change/ get more of the cake ("Apple" example)

3

Long term

• Especially "getting more of the cake" implies for TelCos:

– Understanding the changes of society (e.g. migration of the population and change in demographics) and the continuous decrease of the share of personal disposable income spent on TelCo related services in order to identify profitable new business areas (e g Media and Travel)

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identify profitable new business areas (e.g. Media and Travel) – To shift from a technology driven market approach to a more consumer oriented approach

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PRIORITIES IN TELCO 2

Cost reduction potentials include "next round" of operational efficiency, new technologies (NGN), outsourcing and carve-outs

Growth Costs Tech./ Infrastr 2 Regul. Infrastr.

Cost reduction potential Next round of operational efficiency programs New and more cost efficient technologies – NGN

1 2

Outsourcing and near-/off-shoring Network carve-out (KPN)?

3 4

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PRIORITIES IN TELCO 2

Developing a regulatory framework for NGN currently is a hot topic for all TelCo regulators

Growth Costs Tech./ Infrastr 3 Regul. Infrastr.

Current situation Issues considered by regulators

• NGN still in an evolutionary phase – No country has

as yet developed a specific regulatory framework

• However, regulators in various countries are already

considering the best way to facilitate an NGN i t f i dl li t ith t i bl b i

• Will the migration to NGN require a complete review
• f the current ICT legal framework?
• Will it require reorganization and restructuring of

regulatory authorities? investor-friendly climate with sustainable business

• pportunities
• Some countries (e.g. USA) are even already in the

process of developing an NGN regulatory framework, while others seek to learn from international best

• How can regulations best address the converging ICT

sector that was previously separated and regulated in silos?

• How can regulators continue to ensure fair

titi t i l t ICT d while others seek to learn from international best practices competition, promote universal access to ICTs and protect consumers in a changing environment?

Th l l i d i i f k i li hi h i k f T lC

24 Source: International Telecommunication Union

The yet unclear regulatory environment and missing framework implies high risks for TelCos investing in NGN

24

PRIORITIES IN TELCO 2

NGN – Incumbents' effort in recreating a network monopoly as means to control competition

Growth Costs Tech./ Infrastr 4 Regul.

Comments

• Incumbents like NTT (Japan) investing in

NGN – Recreation of network monopoly

Infrastr.

• Incumbents like NTT (Japan) investing in

NGN are recreating a network monopoly in order to: – Keep control over the network

Services

Shopping TV

…

– Limit flexibility of competitors' services

• ffered via the NGN

– Secure their investment

Platform

Settlement …

Network

25

FTTH Mobile

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PRIORITIES IN PAY TV 3

Safeguard and strengthen the core business and create the basis for a new growth impetus

MARKET TRENDS

Share of wallet:

• Migration from Free to Pay-TV
• Market entry of IPTV

STRATEGIC PRIORITIES

Market entry of IPTV

• Initial market segmentation

Share of time:

• Beginning of cannibalization of traditional

media

Safeguard the core business

• Secure reach in cable, satellite and

1

media

• Fragmentation of TV offering
• New generation of online services

DSL Strengthen the core business 2 Pay-TV‘S CORE ELEMENTS

Content: Exclusive premium content R h t 100% i C bl d S t

• Ensure exclusivity and availability of

content

Reach: up tp 100% in Cable and Sat Customer relations: x m direct customers Brand: Dominant Pay-TV brand, premium positioning

Expand the core business

• Develop the customer relationship

3

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positioning

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NEW MODE OF OPERATION 4

Definition of future mode of operation requires understanding of industry tends and resulting opportunities and threats

Future business trends shaping future mode of operation

KEY INDUSTRY TRENDS

Strategic layer

• Validation of relevant markets, customers,

products and services

• Validation and alignment of value proposition

within changed competitive environment

Equipments

Dévelop pement Production Distribu tion

carrier services Advanced services

Network IS / IT Product Develop Marketing Sales Customer care Contenu Business Services Enablers

Partnering

Distribu- tion Réseau IS / IT Dévelop. Produits Marketing Ventes Customer Care Enablers Accès au Consom- mateur

D

within changed competitive environment

• Validation of critical success factors

Partnering Providing free access to users A C2 providing free access to user C E2 A Consolidation Convergence Fixe Mobile B

• Alignment of core business processes and
• rganizational structures to facilitate (new)

new value proposition (i.e. convergence of fixed Operational and organizational layer

Phases with low presence Phases with wide presence

Fostering their “Consumer Gateways ” Reinforcing 3rd party revenues C2 C1 X

• Fostering their consumer gateways

Moving into ICT market E2 E1 X

• Trends

F G reinforcing 3d party revenues

• Traditional telecom value chain is in flux and adjacent industries start to

converge

• Telecom operators are challenged by new players (i.e. handset vendors,

system integrators) and business models (i.e. portals, web 2.0, ICT p p ( g and mobile product development, single customer interfaces, etc. )

• Alignment of required capabilities and

competencies

27

y g ) ( p , , solutions, etc.)

27

NEW MODE OF OPERATION 4

Examples from other countries show that there are various reasons for telco operators to change organizational design

Regulatory pressure: spin-off access network Market pressure: change sales organization LE Technology pressure: converge organizations

Future mode of operation – Considerations

Initial Situation: Regulatory requirements for incumbent EXAMPL Initial Situation: Increased competition in fixed line Initial Situation:

• Fixed Mobile convergence: New
• Regulatory requirements for incumbent

to separate network and guarantee equivalent treatment of all communication providers regarding provision of last mile Action: NG

• Increased competition in fixed line

market

• Loss of market share
• Average acquisition cost per customer

above industry average Action:

• Fixed-Mobile convergence: New

transmission technologies enable convergence of fixed and mobile communications (VoIP, WiMax)

• Swisscom's focus shifted from product

and technology towards customer expectations (price quality mobility Action:

• Launch of Openreach as separate

business unit with its own headquarters, identity, and financial reporting within the BT Group Result: TION & PRICI Action:

• Introduction of value-based customer

segmentation

• Reorganization of customer support

unit: separation of sales and care, integration of technical call center staff into sales unit downsizing call center expectations (price, quality, mobility, convenience) Action:

• Merging of fixed and mobile business

division into single unit to account for trend towards convergence Result:

• Openreach is first implementation of

functional separation among European incumbents

• New business unit has become BT's

most profitable business unit with 36% EBITDA margin REGULAT into sales unit, downsizing call center Result:

• Shift to customer-focused
• rganization yielded increase in sales

and customer satisfaction as well as cost reduction trend towards convergence

• Launch of combined mobile and fixed

line solutions (i.e. full mobile connect- ivity to business applications etc.) Result:

• New convergence driven organiza

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EBITDA margin cost reduction

• 22% FTE reduction in sales unit
• New convergence-driven organiza-

tional structure

• Financial impact of change to be

determined

28

NEW MODE OF OPERATION 4

Industry best practice shows approaches of customer centric mode of operations to overcome technology centered structures

Future mode of operation – Considerations

Vertical organizational structures Horizontal organizational structures

Customers Sales Sales Sales Consumer SME Large Corporate IP VPN ADSL ICT Solution

Sales &

• Cust. Care

Products & Services

Service Service Service Network Network Network Fixed Mobile Data

Network & Platforms Examples:

• “Technology”-centered approach
• Joint customers are addressed by 3 different
• “Customer”-centered approach
• Customer is addressed by one sales organization

Joint customers are addressed by 3 different sales organizations selling distinct (competing) products

• Individual product development leads to
• verlapping services offering portfolio with

Customer is addressed by one sales organization

• ffering complete service offering
• Product development across different

technologies to best meet customer requirements (independent from technology)

29

pp g g p competing offerings and high complexity

• High need for accord between different areas

( p gy)

• Supports market trends of FMC and ICT solution
• fferings

29

NEW MODE OF OPERATION 4

Customer centricity can be translated into the "NetCo-ServCo- SalesCo" model as guideline for future mode of operation

Future mode of operation – Considerations

AREA PHILOSOPHY AND FOCUS COMMENTS

"SalesCo"

• "Best in customer intimacy"
• Superior sales competencies and

capabilities

• Superior customer service competencies
• Approach to defining a "customer

centric future mode of operation" for telecom operators

• Superior customer service competencies

"ServCo"

• "Best in innovation"
• Superior product development and

management competencies and telecom operators

• A central element is the concept of

customer segments and service portfolios beyond the limits of the classic products lines (fixed, mobile, management competencies and capabilities

• Superior customer insights into

characteristics and needs data)

• Each "entity” will focus on a unique set
• f competencies and excel best in

class in its respective subject matter i fi ld "NetCo"

• "Best in affordable quality"
• Leading edge technology and platform

strategy

• Realization of economies of scale

experience field

• Interfaces and interaction between the

different departments need to be defined with respect to the requirements of the market

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• Superior cost and efficiency management

requirements of the market

30

NEW MODE OF OPERATION 4

Future Mode of Operation will be determined through multi-step evaluation of the option space

Procedure when selecting the future mode of operation

Limitation of option space Assessment of roadmap Quantitative evaluation

FILTER 2 FILTER 1 FILTER 3 Options feasible with regard to Telco capa- Options based on global best Options with best score in quantitative Optimal

• perational

bilities and strategy global best practices evaluation

• perational

model

Match options and capabilities required for execution of options against Telco capabilities and strengths and against business Quantitatively evaluate options based on various criteria:

• Operational KPI's
• Financial KPI's

Estimate cost of execution for all remaining options

• Investment requirements (CAPEX)
• OPEX impact

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strengths and against business strategies

• Financial KPI s
• Market share impact
• Return on capital
• OPEX impact

31

Agenda

1

Our ideas of the future WebTV – A web 2.0 phenomenon fragmented, halfhearted and under-exploited

2

under exploited

32 32

WebTV offers significant potential for traditional media companies through several levers – Nine core thesis

WebTV today already plays a major role in web entertainment

1

WebTV audience is commercially very attractive – Yet fragmentation induces need for differentiation Ad-funded premium content offerings are on the rise but content licensing issues need to be resolved

2 3

resolved Majority of WebTV offers likely to remain free – Users only willing to pay for talk-of-the-town content WebTV will fast move to mobile devices

4 5

WebTV will fast move to mobile devices WebTV will gain significant share of TV consumption time once established on the TV screen W bTV ill iti it lf i di t titi t t bli h d TV l b fiti f

6 7

WebTV will position itself in direct competition to established TV players benefiting from new features In the long run, IPTV and WebTV are very likely to converge

7 8

33

Traditional media companies must react now to establish WebTV brands in the minds of the consumers

9

Source: Roland Berger

7

Once on the TV-screen, WebTV will directly compete with established players, offering new features

EXAMPLES OF INNOVATIVE WebTV FEATURES

Active sharing In-video commentaries Personalized displaying

Possible

g p y g

Possible next steps: > Real-time voting > Contests

> YouTube with active sharing feature > On MTV Network's teen video network site, "The N", users can add comments in the > Users can choose between three different ways of video displaying – standard view

> Co- browsing

> Other users watching the video at the same time are displayed aside video screen > Clicking on user names initiates redirection to can add comments in the video > Viewer's comments ("vomments") appear at a dedicated space at the displaying – standard view, video wall view and video cloud view > Standard view gives users additional information; Video

> Location linking > Nerd

34

initiates redirection to personal site of respective user p bottom of the screen ; wall and cloud view perceived as conveying more choice to users

> Nerd input1)

1) Explanatory commenting on special-interest topics (1:n) Source: YouTube, The N, Snotr

French WebTV market highly fragmented – Top 10 players with just 51% share, Orange TV taking minor role in terms of views

WebTV players in France ranked by reach (January 2009)1)

Comments > Views distributed over many, many portals – Top 10 player make up

Website Origin Unique Viewers ['000] (% growth) Videos ['000] Share in views [%] Videos per user Total France 27 074 (+ 16%) 2 515 325 100 % 92 9

Top 10 player make up less than 51% of market share > Reach and views still mostly UGC driven

Total France 27 074 (+ 16%) 2 515 325 100 % 92,9 Google Sites Int 12 181 (+ 25%) 776,2 30,9% 51,2 Dailymotion,com Nat 10 041 (+ 14%) 247,3 9,8% 21,5 Microsoft Sites Int 4 176 (+ 19%) 30,5 1,2% 6,1

> Commercial premium content offers start only with rank three > Orange is the only Telco in Top10

( ) Groupe TF1 Nat 4 231 (+ 13%) 41,8 1,7% 8,7 Orange Sites Nat 1 439 (+ 204%) 19,8 0,8% 4,5 France Televisions Interactive Nat 1 031 (+ 228%) 18,2 0,7% 5,4

in Top10 > Orange at 5th position in reach > Position in views (7th)

AOL LLC Int 1 619 (+ 105%) 67,8 2,7% 20,4 AlloCine Sites Nat 2 275 (+ 18%) 11,7 0,5% 4,3 Kewego Nat 2 093 (+ 24%) 13,8 0,6% 5,3

35

1) 15 years and older, Home & Work Locations, excludes videos viewed on public computers such as Internet cafes or access from mobile phones or PDAs.

> Position in views (7th) demonstrates potential

Source: ComScore

Megavideo.com Int 755 (+ 213%) 70,1 2,8% 29,7

In summary, the fragmented WebTV landscape in France shows many half-hearted offerings – no full-fledged portals

Competitive WebTV landscape France

Pure commercial content Web Premium VoD

> Players offer content categories which they

IMPLICATIONS

Pure commercial content

TF1

Web Broadcaster Premium VoD Provider

Orange Zattoo

have available or which correspond to their

• rigin, and design portals correspondingly

> Most libraries (except for UGC portals) are limited

… Canal Play VirginMega TV-direct

ted > No full-fledged portals on the market – many very half-hearted offerings > Full fledge portals – which serve as a unique point of reference would comprise

MSN Video Print portals

>60 Linear Channels No Linear Channels

YouTube

point of reference – would comprise – UGC and professional content – Free and Pay – VoD and linear channels

Dailymotion

Pure UGC Contents

YouTube

Video Sharing Community Community TV

C

– High degree of usability > Internationally successful players, however, become increasingly visible: – Hulu

36

= PPV Site = Free Site = Content library size

– Hulu – Yalp!

Source: Roland Berger Research

In the US, Hulu is developing into highly relevant competition for classical TV – ad revenues of USD 180m expected for 2009

> User can choose from episodes of about 1,000 shows and 400 movies; premium TV-series and US cable shows are

CONTENT AND FEATURES

400 movies; premium TV series and US cable shows are available due to cooperations with NBC, FOX, Warner, MGM (over 50 partners) > Part of the content is available in HD-quality > Currently access from the US only, but international roll-out > Joint venture between NBC Universal and News Corp > Ad-funded, shares ad-revenue with content providers (70%) and

BUSINESS MODEL AND BACKGROUND

planned (Germany, UK, France and Japan) , p ( ) distributers (10%), Hulu (20%) > About 80 % of all streams have a paying advertiser > Distributed via hulu.com and through partners likes AOL, Comcast, MSN, MySpace, and Yahoo > Usage (US): #2 in terms of time spent though only #11 in terms of viewers and #6 at streams delivered1) > Gross revenue: 2008: USD ~70m; 2009e: USD ~180m2)

RELEVANCE, REVENUES AND PROFITABILITY

37

> Gross revenue: 2008: USD 70m; 2009e: USD 180m ) > Assumedly, Hulu already makes a positive gross margin2) – real break even may be already in 2008

Source: Roland Berger research, Screen Digest, Nielsen 1) Nielsen, Data for Sept. 2008 2) Screen Digest

CONTENT AND FEATURES

1

Hulu offers a variety of ad-formats to advertisers – “Classical“ WebTV ads dominate, enhanced by selected “Specials“ for the user

Pre-/Mid-Roll “Logo Bug“ “Branded canvas” “Ad type choice”

In-stream ads Overlay formats On-site ads Specials

Pre /Mid Roll Logo Bug Branded canvas Ad type choice

> Classical Pre-Roll or in- Program spots > Duration: 15 or 30 seconds > Small, clickable icon displayed at the bottom right

• f the running video screen

> Large, clickable companion unit that appears while related Pre-/ Mid-Roll is > Users can choose whether they prefer a 2-min pre-roll ad (88% choice) or short ( %)

End-Card Classical overlay Companion Banner “Ad-selector”

playing interruptions (12%) > Large clickable banner > Banner appearing to the > Small banner that is shown > Interactive in-stream banner

38

> Large, clickable banner displayed at the whole bottom of the running video screen > Banner appearing to the right of new video / recommendation section after video has finished > Small banner that is shown

• n-page while the video is

playing in (non-full-sized) player > Interactive in stream banner that enables user to chose between selected ads to be shown

BUSINESS MODEL AND BACKGROUND

2

Hulu acts as a content aggregator earning 20% of total advertising revenues and forwarding a further 10% to the distributor

Content providers: 70% of

• adv. revenues

Content aggregator: 20% of

• adv. revenues

Content distributors: 10% of

• adv. revenues

End users: Free Video

Advertising revenue sharing and content distribution model of Hulu

1)

39

1) Hulu also acts as a content distributor. In such case, it earns a total of 30% of advertising revenues Source: Roland Berger research, Hulu

Yalp! Case Study – Initial situation: Old fashioned design and half- hearted positioning drove to Telecom Italia to action

ROSSO ALICE SCREENSHOTS OFFER DESCRIPTION

> Pay VoD portal – mere web extension f i ti IPTV V D lib f ng

• f existing IPTV VoD library from

Telecom Italia > Limited library size and diversity > C it d bli hi positionin > Community and publishing infrastructure widely underdeveloped – No UGC and few free content (mainly music, little video) esign and > Declining unique visitor numbers > Severe lack of usability – no search, no recommendation, no tagging, no rating De ct g q despite growing market > Low take-up rates in pay library while ad-inventory sold negligible > Unattractive GUI and site design ssure to ac

40

> Revenues converging to zero despite considerable cost base (content / play-out)

Source: Yalp!, Roland Berger

Pres

Roland Berger defined a new strategy and relaunched Telecom Italia‘s WebTV offer in three steps

RBSC project phases and activities

• User interface

1

Goals and Scope

> Develop a completely new

User interface

• Content
• Ads and features

Market deep drill Phase

completely new WebTV offer in all relevant dimensions A ll i

• Value proposition

Strategy develop- ase 2

> Assure well running

• perations and a

sustainable business model

• Go to Market

p ment Pha 3

> Exploit TI-specific synergies

O i l

• Desk research

Launch preparati

• n

Phase 3 Full redesign of

• Operational

plan

• Testing /

piloting

• Modeling
• Work meetings
• Workshops
• Infrastructure

• Advertising

• Modeling
• Work meetings
• Workshops
• Infrastructure

• Modeling
• Work meetings
• Workshops
• Economic models

• Workshops
• Strategy
• Roadmap
• Documentation

41

Full redesign of TI’s WebTV strategy piloting

Launch in May 2008

• Documentation

Our main recommendation was a move to the "white spot" – development of Yalp! as Europe’s first full-fledged WebTV portal

Telecom Italia strategic WebTV move

Pure commercial content

Web Premium VoD

> Create the first European full-fledged

Strategic rationale

Pure commercial content

Veoh

Web Broadcaster Premium VoD Provider

Joost 100%

2

Zattoo

> Create the first European full-fledged WebTV offering that comprises – UGC and professional content – Free and Pay V D d li h l

AOL Vid Maxdome JumpTV

– VoD and linear channels – Short and long duration clips > Benefit from community and network effects th h t i ti d

>60 Linear Channels No Linear Channels

AOL Video YouTube 100% Glomera

through vast communication and personalization features > Become a unique point of reference for a highly versatile and fragmented target group B ild W bTV‘ t th b t f th

Pure UGC Contents

Video Sharing Community Community TV

Dailymotion 100%

> Build on WebTV‘s strength but prepare for the upcoming move on TV-screen (and harvest into traditional TV advertising revenues) > Exploit local opportunities in Italy and then l ff i t ti ll

42

= PPV Site = Free Site = Hybrid Pay/Free Site = Content library size Source: Roland Berger

lever offer internationally

Implementation of the strategy was realized along four dimensions – Success factors and showstoppers identified early

Yalp! success factors and premises Offer dimensions

> Avoid risk of f > Proactively direct users in view of diverse

1

a fuzzy profile

Site design

> Proactively direct users in view of diverse and unique offering > Create cross selling effects

Content base

> Create attractive advertising environment (move from pay to hybrid site) > Assure sustainable content costs

2

> Create an

• ffer now

that fits

GUI

> Provide extreme ease of use > Prepare for move onto TV

3

WebTV’s future…

Features

4

> Attract and retain chosen target segments > Contribute to uniqueness of the offering in the > … but early and explicitly consider s WebTV

43

Features

4

perception of the user WebTV economics

1

Site design

Site design – We structured the overall Yalp! offer into three distinct entertainment worlds with clearly defined user paths

a

Yalp!’s three entertainment worlds

Video – professional VoD section

New Yalp! starting page screenshot

a

> Extensive libraries (> 80.000 titles) > New features (multidimensional search, rating/ tagging / commenting, personal channels, etc)

Video

professional VoD section (free & pay)

b

TV – real time linear TV channels (free)

a b c

User paths User paths

> Advanced and short EPG, digital remote > Picture in picture (ads), fast zapping and interactive functions

a b c

User paths User paths

c

> Blog, V-log and UGC library

Community – UGC, profiles,

personalization User paths User paths

44

Blog, V log and UGC library > Connecting functions, votings, and channel publishing

2

Content base

Content base: Zoom-in Professional VoD library – assorted in four steps, Yalp!’s VoD section today comprises more than 80.000 titles

Yalp! VoD Library assortment process

Today’s Yalp! VoD Libraries

s

Market Category Inventory Contract

um movies

a b c d

> Extensive competitor Market screening Category definition Inventory fine-tuning Contract negotiation > Target group analysis (local > Inventory

• ptimization

> Selection on new content

Premiu

competitor bench- marking (>200.000 titles over 8 t i analysis (local viewing patterns, demographics) > Basic offer

• ptimization

modelling on subcategory level (>200 subcategories ) new content providers > Contract and profitability analysis for

and TV

categories and 12 players) > Content provider definition (12 categories) > Content focus/profile development ) > Definition of basic stock and refreshment existing providers > Extensive contract (re )

Series a

provider screening (>4 00 potential candidates) development (eg motori) refreshment rate per subcategory (re-) negotiation

45

∑ > 80.000 professional titles 

3

GUI

GUI: Zoom-in linear channels – Implementation of classical TV elements features ease-of-use and a smooth transition to the TV screen

Yalp! short EPG and digital remote Yalp! Full EPG

GUI d i d f b i l di i l TV i (IP CA SAT TV) R l TV f li i > GUI derived from best-in-class digital TV experience (IP-, CA-, SAT-TV) – Real TV feeling via the Web > Ease-of-use through recognition effects with classical TV elements (eg digital remote) > Additi l d b th f ll d h t EPG

46

> Additional ad-space on both full- and short EPG > Yalp! as one of the best positioned WebTV offers easy transition to the TV screen



4

Features

Features: Zoom-in "Become a director" concept – clear differentiator from the competition from WebTV and traditional TV

“Broadcast Yourself” @ YouTube “Broadcast Your likes” @ Yalp!

> YouTube user is providing users a platform to publish > Yalp! user can become a programming "director":

• wn content

> Contents displayed in VoD libraries or channels > Users can vote on single clips – Personal mash-up of professional, UGC and own content published via Yalp! platform – Best channels appear on the global channel listing

47

“BROADCAST YOURSELF” – PROVEN STATE-OF-THE-ART CONCEPT “BROADCAST YOUR LIKES” – INNOVATIVE "YALP! BECOME A DIRECTOR" CONCEPT

Source: Yalp!, Roland Berger