Broadband Content Workshop: Which model to drive premium content offers in Europe? The view of a Pan-European independe

1. Broadband Content Workshop: Which model to drive premium content offers in Europe? The view of a Pan-European independent telecom operator/ISP Renato Soru CEO Brussels, 15 July 2003

2. Broadband Penetration % (NNR, Nielsen Net Ratings 2003) Broadband Content: the state of art • Broadband access in Europe is starting to take off (although incumbents are strongly re-monopolizing the ADSL market) • NNR foresees Europe Broadband penetration in 2004 to overtake US; however, as far as content is concerned EU is still far behind: • Most European on line entertainment audience spends its time on free to air services and illegal file sharing (55% audience – NNR), with the only exception of adult content • Unlike the US, very few premium content services are available to the European entertainment audience

3. US Premium Content • The US market is driven by high value and generalist offers directly built by major content owners or aggregators (very few ISPs being involved) .. • Generalist: Real One Super Pass, Yahoo! Platinum • Movies: Movie Link, Netflix, CinemaNow • Music: I-tunes, Pressplay, MusicNow • … and users are starting to pay for content • Real One: over a million paying subscribers • 10 per cent of US broadband users have rented a movie through an online service (Forrester, 2003) • I-tunes: 500.000 tracks sold every week

4. Premium Content Barriers • Commercial • Illegal File Sharing (worldwide barrier) • Very few premium content available (EU specific) • Lack of wide spread methods of payment that are accepted by on line users (EU specific) • Small size language market (EU specific) • Infrastructure • Average bandwidth per broadband connection still relatively low (worldwide less Far East Asia) • The PC still hardly fits into the domestic entertainment environment (mainly the TV) (worldwide)

5. EU content owners are holding back • The EU majors (mainly Broadcasters): • With a few remarkable exceptions (BBC), all major EU content owners and distributors are keeping very low investments in the development of audio-video offers for the on line world. • The EU small-size producers and distributors: • This characteristic EU media model is currently completely cut off from the on line world • A major lack in Strategy and Vision: • Unlike US content owners, there is very little awareness among EU players of how strategic broadband is to their future development and survival • EU content owners try to replicate models out of their traditional business (mainly the pay-tv model) without facing that the Internet is “a completely different story” • A general dominant and misleading opinion that broadband products are to be financed by ISPs, à la Pay-tv, while in the US ISPs play exclusively the role of final distributors (promote, deliver and charge)

6. The Broadband Access Market Not a favorable environment for content owners • Lack of wide spread global methods of payment that are accepted by on line users • Strong inhibition to the monetization of content • Incumbents’ Dominant Position (up to 90%) • Incumbents tend to market content as an exclusive service bundled into the broadband access offer (leveraging high access margin and thus cannibalizing the content value) • A single player’s game: Incumbents are in the position to fix the price Why should content owners jeopardize their traditional business for such a small market?

7. A vicious circle • Content Owners Have poor opportunities of monetizing content • Incumbents Get poor content and don’t develop appealing offers • Consumers revert to file sharing which provides better content and service • Other ISPs Are cut out of competition Content Owner Incumbent ISP other ISPs File Sharing Drain

8. The Broadband Content Model Every player should mind his own business • Content Owners should focus on bringing their content to the web • Build broadband products: encode, license, publish • Gross-Distribute products on all available on line channels • ISPs should focus on providing a suitable environment for content to be served, promoted and sold (final distribution)  provide open infrastructure for content delivery  distribute broadband products to their customer base  provide users with secure and acceptable payment methods to their customers (their own or third party)

9. It’s old business as usual Deliver Product Content Owner ISP Promote Charge Revenue Share • Content Owners should keep doing what they have always done: • build good content (but now focusing also on the web) • ISPs should behave as supermarkets: • Provide shelves, i.e. infrastructure and promotion • Provide the cash machine, i.e. payment gateways and bills

10. But not the usual Show This model has nothing to do with TV: • Exclusivity by an ISP on a certain content implies cutting out all other ISPs’ users from accessing that content; • as a result of that, users will revert to other means in order to get hold of such content, that is to say: File Sharing!! Never forget: Internet is by its nature open And this market has more to do with HomeVideo than the usual TV show

11. Actions • Content must hit the on line store • Content owners must get more involved • The EU should study incentives to favor the process • Remember: small producers and distributors risk to be completely cut out of the business! • ISPs need access to content • Exclusivity or preferential relationships - also de facto - between incumbents and content providers must be avoided in order to guarantee equal access to content by all ISPs • Payment gateways are badly needed • The EU should promote in each country the adoption of payment methods that are accessible to all users • No user should be discriminated by not having access to payment methods that are required to purchase content • The EU Commission must promote the integration of a transnational broadband access market • Moving beyond the current small size local markets is crucial in order to create the critical mass required to kick-start investments by EU content owners • Broadband access competition (also by way of appropriate regulation – see bitstream) must speed up • It will just never work so far incumbents have 90% access market share in their countries!