California and the New-Media Hub: Keys to the Interactive Home

Polling Question:What High-Tech Media Device Can You Not Live Without?

1. iPod or Other MP3

2. TiVo or Other DVR

3. Palm Pilot or Other PDA

4. BlackBerry

5. Bluetooth Device

Polling Question:What Do You Dislike the Most About New-Media Technology?

1. Too Quickly Outdated

2. Too Difficult to Operate

3. Too Expensive

4. Too Many Separate Devices

Polling Question:If a Movie Were Simultaneously Released Both in the Theaters and on a Home Format Such as DVD, Would You Still See the Movie in the Theater?

1. Yes

2. Maybe, It Depends on the Movie

3. No, I Would Buy the DVD or Legal Download

4. No, I Don’t Watch Movies

What’s Next?Nintendo

The wireless controller for the Revolution console (due out in 2006) allows you to control your game through your own body movements.

What’s Next?Wireless Music Stores

Over-the-air music stores make it possible

to buy and listen to songs on the go.

What’s Next?Pocket PC

A Pocket PC with IBM’s Multilingual Automatic

Speech-to-Speech Translator can help you

translate your words into Chinese and some Spanish

and Arabic.

Format FoundersBlu-Ray

• Sony Corporation

• Philips Electronics

Format FoundersHD DVD

• Toshiba Corporation

• Hitachi Corporation

Studios Listed as Supporting Members

Blu-Ray

• 20th Century Fox

• Buena Vista HomeEntertainment

• Electronic Arts

• Sony Pictures Entertainment

•MGM Studios

• The Walt DisneyCompany

• Warner Bros.

• Vivendi UniversalGames

• Warner Bros.

• Paramount Pictures

Studios Listed as Supporting Members

HD DVD

• Buena Vista Home Entertainment

• New Line Cinema

• Paramount Pictures

• The Walt Disney Company

• Universal Studios

• Warner Bros.

Companies Listed as Supporting Members

Blu-Ray

• Apple Computer Corporation

• Dell Inc.

• Hewlett Packard Company

• Hitachi, Ltd.

• LG Electronics

• Mitsubishi ElectricCorporation

• Panasonic

• Pioneer Corporation

• Philips Electronics

• Samsung Electronics

• Sharp Corporation

• Sony Corporation

• TDK Corporation

Companies Listed as Supporting Members

HD DVD

• Microsoft Corporation

• Intel Corporation

• Memory Tech Corporation

• NEC Corporation

• Sanyo Electric Company

The Top Cable and Satellite Companies in the U.S.

As of July 1, 2005

CompanyMillions of

SubscribersDIRECTV (DBS) 14.6EchoStar (DBS) 11.4Comcast 7.7Time Warner 4.3Cox 2.9

Entertainment and Media Statistics

Television Industry, 2004

Category AmountU.S. Households with Televisions 109.6 MillionBroadcast TV Stations, U.S. 1,748Cable TV Subscribers, U.S. 73 MillionDigital Cable Subscribers, U.S. 27 MillionWorldwide Digital Cable Subscribers 42 MillionWorldwide Revenues for Cable Modem Services $18 BillionU.S. Homes with DVD Recorders 7 MillionU.S. Homes with DVRs Projected for 2008 33.5 MillionU.S. Homes with VOD Services 19 MillionTiVo Subscribers, U.S. 2.3 MillionTotal Digital Televisions Sold 7.2 Million

Entertainment and Media Statistics

Film Industry, 2004

Category (U.S.) AmountDVD Rentals and Retail Sales $21.2 billionVHS Rentals and Retail Sales $3.3 billionBox Office Revenues $9.4 billionMovie Tickets Sold 1.5 billionAverage Ticket Price $6.25

Entertainment and Media Industry

Video Game Industry, 2004

Category (U.S.) AmountVideo Game Products Sales (excl. PC Games) $9.9 bil.Total Video Game Industry Software Sales $6.2 bil.Approximate Portable Gaming Software Sales $1.0 bil.

Entertainment and Media Statistics

Music Industry, 2004

Category AmountGlobal Music Sales $32 billionU.S. CD Sales $12 billionConcert Revenues, North America $2.8 billionTracks Sold in the U.S. and Europe 200 millioniPods Sold 4.4 millionLegitimate Music Download Sites (Apporx.) 230

Illegal Music Downloading

Impact on Music Purchasing

No Impact, 54%

I buy less music, 36%

I buy more music, 10%

Infringing Music Files on the Internet

2002-2005

Jan-2005Jun-2004Jan-2004Apr-2003Apr-2002

1100

1000

900

800

700

600

500

Millions

Infringing Music Files on the Internet

2002-2005

April2002

April2003

January2004

June2004

January2005

WEB & FTPSITES 100 100 100 100 110

P2PNETWORKS

500 1,000 800 700 760

TOTAL 600 1,100 900 800 870

Millions

U.S. Download and Upload Locations

Top 5 Countries, 2003

United States 45.1 United States 49.0Germany 16.5 Germany 9.9Canada 6.9 Canada 7.9Italy 6.1 Italy 5.7United Kingdom 4.2 France 4.7

Users in the U.S. Download from (%) Users in the U.S. Upload to (%)

Music Units ShippedMillions of Units, 2004

Unit 2004Percent Change

2003-2004 CD 766.9 2.8%Digital Single 139.4 NAMusic Video 32.7 65.0%DVD Video 29.0 66.0%Cassette 5.2 -69.6%Digital Albums 4.5 NACD Single 3.1 -62.2%LP/EP 1.3 -11.9%DVD Audio 0.4 -20.6%

Music Downloading Demographics

By Gender and Age, % of All Music Downloaders

2000 2001 2003 All Adults 22% 29% 29% Men 24% 36% 32% Women 20% 23% 26% 18-29 37% 51% 52% 30-49 19% 23% 27% 50 + 9% 15% 12%

Music Downloading Demographics

By Education Level, % of All Music Downloaders

Educational Attainment 2000 2001 2003 Less than High School 38% 55% 39% High School Graduate 25% 31% 31% Some College 25% 32% 33% College Degree or more 15% 21% 23%

Music Downloading Demographics

By Income, % of All Music Downloaders

Household Income 2000 2001 2003 Under $30,000 28% 36% 38% $30,000-$50,000 24% 31% 30% $50,000-$75,000 20% 29% 28% $75,000+ 15% 24% 26%

Sources of Current Downloads

Percent of Internet Users Surveyed, January 2005

Source Yes,

currently do

No, but have

in the past No, and

never have Online music service 7.6% 2.2% 17.9%Email or instant message 5.6% 2.2% 20.2%Other music-related website 4.8% 1.7% 21.8%Kazaa or Morpheus (P2P) 4.5% 4.8% 18.2%iPod/MP3 4.2% 1.1% 22.4%Movie-related websites 2.0% 0.6% 25.2%Blogs 1.1% 0.8% 25.5%Movielink 0.6% 1.1% 26.3%

iTunes Milestones2005

• July 17, 2005 – 500 million songs sold

• May 10, 2005 – 400 million songs sold, Custom stores for music fans in Denmark, Norway, Sweden and Switzerland

• January 24, 2005 – 250 million songs sold

Car Companies Offering iPod Adaptable Stereos

United States, 2005

• Mercedes-Benz

• Volvo

• Volkswagen

• Nissan

• Ferrari

• BMW

Home Network

DVD Player / Recorder

Home Server

Digital Audio Receiver Receiver with PVR

Home Media Network

PDA Car

PC

GamingConsole

Cell Phone

A Home Network is a set of household devices that may

share content in a predictable, consistent way. The Home Network might include devices such as set-top-boxes, TVs, PCs, cars,

and portable devices.

Home Networking is a Format Like DVD...

Storefront Z

Storefront X

Home Network “format”

Storefront Y

Interoperability Requires Standards at Several Levels

Networking / Transport

Lay

ers o

fH

ome

Net

wor

king To transmit content

between two devices, both devices must utilize the same communication protocol.

Interoperability Requires Standards at Several Levels

Codec

Networking / Transport

Lay

ers o

fH

ome

Net

wor

king

For a device to decompress content compressed by another device, both devices must share a common compression standard.

To transmit content between two devices, both devices must utilize the same communication protocol.

DRM /Copy Protection

Codec

Networking / Transport

Lay

ers o

fH

ome

Net

wor

king

For a device to decompress content compressed by another device, both devices must share a common compression standard.

In order for two devices to share protected content, both devices must use the same protection scheme or agree to a common protection scheme.

Interoperability Requires Standards at Several Levels

To transmit content between two devices, both devices must utilize the same communication protocol.

Usage ModelDRM /

Copy Protection

Codec

Networking / Transport

Lay

ers o

fH

ome

Net

wor

king

For a device to decompress content compressed by another device, both devices must share a common compression standard.

In order for two devices to share protected content, both devices must use the same protection scheme or agree to a common protection scheme.

Consumer adoption of devices also requires that those devices manage content and function in a consistent, predictable fashion.

Interoperability Requires Standards at Several Levels

To transmit content between two devices, both devices must utilize the same communication protocol.

UserInterface

Usage ModelDRM /

Copy Protection

Codec

Networking / Transport

Lay

ers o

fH

ome

Net

wor

king

For a device to decompress content compressed by another device, both devices must share a common compression standard.

In order for two devices to share protected content, both devices must use the same protection scheme or agree to a common protection scheme.

Consumer adoption of devices also requires that those devices manage content and function in a consistent, predictable fashion.

Consumer adoption of devices requires that those devices refer to similar functions in the same way and use similar symbols.

Interoperability Requires Standards at Several Levels

To transmit content between two devices, both devices must utilize the same communication protocol.

Tiers of Functionality

“Roach Motel”• allows a user to offload a copy onto a device that is a dead end

(i.e. once content is on that device, it cannot be moved off that device) • simplest technically, because it does not require interoperability

Move Support• allows a user to move content from one secured device to another• interoperability of technologies becomes an issue• renewability needs to be considered; overall security is only as strong

as the weakest technology in the network

Managed Copying• enables robust support of portables, allowing multiple protected copies

of an instance of content across a secure domain of devices• many of the same issues as Move Support, but also creates additional

requirements for management of the domain and the subcopies

Remote Access• allows consumer to remotely access content from their home domain• requires trusted parties to oversee remote access

Déjà Vu? Audio 1999 & Video 2006

1999 Audio 2006 VideoCD household penetration 72% DVD household penetration 78%DVD Audio household penetration <1% Next gen DVD HH penetration <1% CD Sales saturation DVD Sales saturation PC penetration ~50M homes Broadband penetration ~ 50M homes Broadband Subscribers 1.9 million Fiber ADSL 2 Subscribers 3.2 million GB Hard drive for $150 8.4 GB Hard drive for $150 600% of HDD for 1 song 0.0536% % of HDD for 1 hour video 0.0537%Home internet connectivity 56 kps Home internet connectivity 5 Mbps Minutes to download song 10.7 Minutes to download 1 hour video 8.5CD burners in new PCs Standard DVD burners in new PCs Standard Portable MP3 players <500,000 Portable video players <500,000 Future emerging technology DVD Audio Future emerging technology BluRay Standard for audio piracy 128-bit MP3 Standard for video piracy MPEG 4 Years to iTunes 4 years Years to VideoTunes ???? Next seven years devastation Next seven years ????

Why Now?

Music Industry Acutal/ForecastPriceWaterhouse Coopers

0

5,000

10,000

15,000

20,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Rev

enue

(mill

ions

)

CDs

Online

Total

Music Industry Accelerate Online by 5 Years

0

5,000

10,000

15,000

20,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Year

Reve

nue

(mill

ions

)

CDsOnlineTotal

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Total $13,910 $13,868 $13,306 $12,296 $11,468 $11,468 $11,757 $12,181 $12,808 $13,383

Total (Accelerated) $14,081 $14,215 $14,143 $13,818 $13,584 $14,249 $15,248 $16,142 $17,030 $18,105

Market Difference $171 $347 $837 $1,522 $2,116 $2,781 $3,491 $3,961 $4,222 $4,722

$24,170

Lost revenue opportunity

The Top Satellite and Cable Providers

Services Offered

Service DIRECTV EchoStar Comcast Time

Warner CoxDigital Cable/DVR yes yes yes yes yesOn Demand Services no yes yes yes yesPay per View yes yes yes yes yesHigh Speed Internet yes* yes* yes yes yesHigh Definition yes yes yes yes yesDigital Telephone no no yes yes yes*Internet services provided by a contracted partner

Residential Broadband Internet Penetration

As of July 2004

Residential Broadband Penetration

Per CapitaIncome

(US$ Thous.)Top 5 States* 32.3% 38.0Bottom 5 States 11.6% 25.2US Overall 24.6% 31.5*California is among the top 5 states

iPod and MP3 PlayersAs of April 2005

• More than 6 million American adults have listened topodcasts; 29 percent of those who own MP3 players enjoy Web broadcasts at their leisure

• About 22 million people, about 11% of American adults say they own an iPod or other MP3 player

• 14 percent of internet users own and iPod/MP3 player;only 3 percent of non-internet users

• 21 percent of those with broadband internet access ownan iPod compared to 10% with dial-up connections

Average Web Usage in the United States

September 2005

AmountSessions/Visits per Person 33Domains Visited per Person 60PC Time per Person 28.9 hoursDuration of a Web Page Viewed 49 seconds

Top 10 Cable MSOs in the U.S.

December 2004

ServiceSubscribers

(US$ Millions) Availability PenetrationBasic Cable 58.3 NA 54.2%Digital Cable 25.3 99.0% 22.3%Broadband Internet 21.8 97.0% 18.9%

Commercials and DVRShould Advertisers be Worried?

• 8 percent of all U.S. households had a DVR by mid2005, up from only 2 percent in 2003

• 88 percent of DVR users usually skip commercialswhile watching recorded programs

• 56 percent of DVR users also skipped commercialsbefore they had their DVR

The Digital Living Room

Home Theater in a BoxA Yamaha System

The All-In-One Entertainment Box?

Sony PSP

The PSP™ (PlayStation®Portable) packs a powerful multimedia punch, enabling you to enjoy your favorite games,

music, videos and photos instantly, anywhere. Factor in the PSP system's brilliant high-resolution screen and cutting-edge wireless connectivity and Internet Browser – and you may just

have a revolution in your hands.

The All-In-One Entertainment Box?

Moxi Media Center

• An all-in-one digital entertainmentplatform

• 80 gigabyte hard drive

• Linux operating system

• Powered by Moxi-developedmiddleware

• Uses Macromedia Flash and Realplayer

•FireWire port for additional hard drives

• Uses 802.11a wireless technology

The All-In-One Entertainment Box?

Microsoft Media Center

Microsoft Windows XP Media Center lets you do everything other Windows

XP PCs do—and a whole lot more. Browse the Web, play your favorite PC games, e-mail and instant message your friends, and install and use programs. Media Center also delivers a powerful

yet familiar way to enjoy all of your digital entertainment—photos, music, TV, movies, home videos, and radio

whether you're sitting in front of your Windows desktop or across the room

with a remote control.

TiVoToGo

With TiVoToGo users can transfer programs to a laptop or a PC in any room, burn recordings to a DVD, or save recorded programs to a Windows Mobile-based Portable

Media Device.

Broadband Over Power Lines

Strengths and Weaknesses

Strengths:• Uses existing infrastructure

• Has potential to be less expensive

•Requires no installation

• Avoids availabilitylimitations

Weaknesses:• Presents possible interference risk

• Faces strong competitionfrom Cable and DSL

• Suffers from newtechnology glitches

Broadband Over Power Lines

Matsushita Electric Industrial Co.

The company that manufactures Panasonic

products in Japan has created a chip that allows internet users to receive

broadband through electrical outlets at a speed faster than

Ethernet.

Matsushita Electric Industrial Co.

Where Can the Chip be Used?

• In a TV – to download and watch movies and programs in minutes and on one device

• In a Refrigerator – to check on food supplies while shopping at the grocery store

• In a Thermostat – to turn on or off the air conditioning while away from home

World Internet StatisticsSeptember 2005

Population,Millions

Internet Usage,

Usage Growth % Population % World

( 2005 Est.) Millions 2000-2005 ( Penetration ) Users Africa 897 14.0% 24 428.7% 2.7% 2.5%Asia 3,623 56.4% 327 186.1% 9.0% 34.2%Europe 731 11.4% 273 165.1% 37.4% 28.5%Middle East 261 4.1% 21 305.4% 8.2% 2.2%North America 328 5.1% 224 107.0% 68.1% 23.4%Latin America/Caribbean 547 8.5% 71 291.3% 12.9% 7.4%Oceania / Australia 33 0.5% 18 131.7% 52.8% 1.8%WORLD TOTAL 6,420 100.0% 958 165.3% 14.9% 100.0%

World Region % of WorldPopulation

Broadband Internet Subscribers

Per 100 Inhabitants, 2005

Country DSL Cable Other TotalKorea 13.9 8.9 2.7 25.5Netherlands 13.6 8.9 0 22.5Denmark 13.2 6.1 2.4 21.8Iceland 21.0 0.3 0.4 21.7Switzerland 12.7 7.2 0.4 20.3Canada 9.4 9.7 0.1 19.2Finland 16.3 2.2 0.2 18.7Belgium 11.0 7.3 0 18.2Norway 14.8 2.5 0.9 18.2Sweden 11.3 2.7 2.5 16.5Japan 11.0 2.4 3.0 16.4United States 5.5 8.0 1.1 14.5UK 9.7 3.8 0 13.5