Overview & Trends of

Digital Content Market

23 Oct 2012

KI HYUN JUNG

Contents

1

Agenda

• Digital Content Market Overview

• Trends

• Implications

Contents

2

Agenda

• Digital Content Market Overview

• Trends

• Implications

Growth of Digital Content

3

Digital share of E&M Spending(%)

Sources : PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates (2012)

Digital content market is growing

E E

Comparison of Growth Rate

E E

Digital

Non- Digital

12.1%

2.8%

CAGR

2011-2015

Growth of Digital Content by Segment

4

% of Digitalization by Vertical

0% 20% 40% 60% 80%

Book

Game

Music

Video

5%

48%

33%

5%

18%

60%

55%

7% 2016 2011

Sources : PWC(2012), MPAA, JVA, DFFF, UKFC, IFC, ScreenDigest, DFC Intelligence, Video Game Industry, ScreenDigest, Markets and Markets, IFPI, RIAA, AAP, GPBA, BABP, The Publishers Association, AIE, FPBAI, JBPA, GAPP, APA, SNEP

Digitalization of content is different by verticals

Why

Growth of Digital Content by Segment Video

5

Global Video Market Size

Source: Bain IP, PWC(2012)* OTT: Over-The-Top

Digital video market continues to grow in its early stage,

mainly driven by entries of OTT services.

-

100,000

200,000

300,000

400,000

2011 2016

OTT Digital-VOD

Physical-VOD Pay-TV

6.8%

-4.2%

6.8%

21.0%

CAGR• Proliferation of connected

devices

• OTT services with

competitive pricing scheme

• Difficult to change

behavior of consumers

• Window policy of premium

content provider

+

-

Video

Video Subscribers 1Q09-4Q11

Growth of Digital Content by Segment Video

6

Cord-cutting rises with the emergence of new players

: Netflix subscriber exceeds Comcast

Video

Sources: CNN Money, Company Press Releases (2011)

Struggling Netflix

[Netflix Revenue Vs. Content Cost]

2,163

3,205 3,758

266 947

1,874

2010 2011 2012F

12%

30%

50%

Growth of Digital Content by Segment Video

7

(Unit : USD Mil)

Increasing content sourcing cost and competition within

players undermine competitiveness of OTTs.

Announcement of new policy

[ Netflix Stock Price ]

Video

• Announcement of new policy

and fee increase

- Separation of DVD rental

and online streaming

- Increase of streaming price

• Increased content sourcing cost

• Fierce competition w/ Hulu,

Amazon, Carriers and CATV

players

Source: BARCLAYS(2012)

Growth of Digital Content by Segment Video

8

New players add social elements to differentiate from

traditional service model

Premium Content

User-Generated Content

Live Video Streaming

Video Sharing Social Discovery(1)

(1) Social discovery helps users to discover and share interesting videos in YouTube or Vimeo using social network service.

Expansion of Digital Video Service

Pay per view / Subscription

Video

Content Service

Growth of Digital Content by Segment Music

9

Global Music Spending

Rapid transition to digital changes music industry dynamics

•Proliferation of smart devices

•Growth of digital recorded music market

•Decreased size of physical recorded music market(1)

•Concerts and music festivals as a new revenue source

•Popularity of digital media improving artist value paradoxically

-

10,000

20,000

30,000

40,000

50,000

60,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Digital Recorded Music Phycial Recorded Music Concerts & Music festivals

15%

32%

52%

23%

19%

58%

(Unit : USD Mil)

Source: PWC(2012), IFPI, RIAA

(1) Increase of digital recorded music market does not cover loss from decrease of physical recorded music market

Music

10

Digital Music Sales Market Share U.S. Unique Visitors To Music Services

Source : comScore Media Metrix

iTunes Pandora Rhapsody Spotify

Digital music industry is already in developing stage; New

comers have gained traction

Music

Source : The Music Void (2012)

76%

11%

4%9%

Apple

Amazon

Google

Other services

MUSIC

11

Spotify/Pandora‟s Cumulative deficit

-56.62011

2010

2009

2008

-27.4

-15.5

-11

(Unit : USD Mil)

-0.3

-26.4

-42

-54.2

-125.5

Source : Pandora FY2012 Annual Report

Increased sourcing cost undermine business sustainability

Increase of license fee

Competition with OS/device players

Music

Ready-made

ContentsPay per download

Monthly subscription-based Streaming

User-generated

Contents

Music-based game

Auto-tunesCreation &

Mix-up

12

Observe similar transition like the video industry

Internet radio (Djing, Concierge)

Content Service

Music

Growth of Digital Content by Segment Game

13

Global video game spending (US$ millions)

Online and mobile games will overtake console games in 2013Game

Console/handheld gamesOnline/mobile games

Growth of Digital Content by Segment GameMobile game market is ramping up driven by enhanced SW

tech., matured ecosystem and improved performance of devices

Mobile Console

SWTechnology

Ecosystem

Device/Infrastructure

•Native App to handle complex video rendering

•HTML5

• In-App purchase

•Lower development cost

• Increased speed of network

•High performance device

•Expensive console device and game package

• Increased life-cycle of console device

Game

14

by Segment Game

15

Hard to see clear path of the industry due to market fragmentation

Fragmented Game Market

Different features by each

game segment

Build-up ecosystem

by each game segment

No dominant player &

platform

Console Online Mobile

Main

Genre

Action/RPG

/SportsMMORPG/FPS(1) Casual

User Hardcore GamerHardcore/

Middlecore GamerCasual Gamer

Business

Model

Console device/

Game package

Monthly fee/

In-app purchase

Download fee/

In-app purchase

Players

Sony

Nintendo

MS

Blizzard

NC

Nexon

Gameloft

Com2us

Gamevil

Game

(1) MMORPG : Massive Multiplayer Online Role Playing Game, FPS : First-person shooting

by Segment Game

16

New approaches in Game platform are being introduced

New Approaches in Game Platform

Multi-

Platform

OUYA Gaming Console : Ultra-low cost Consoledevice + In-app purchase

Onlive, Gaikai, Ubitus: Minimization of dependency on hardware

Console

on

Android

Cloud

Game

EA Origin : Game store& SocialService

Social

Game

Game

E-Book

17

North America e-book market growth

Exponential growth is expected in e-Book market

Sources : PricewaterhouseCoopers LLP (2012)

Device

• Variety

: kindlefire, iPad, Nexus7...

• Low Price

• High Performance

: weight, less glariness...

KEYDrivers

Book

Key Driver - Connected Device

18

US Market Share of Android Tablets

Amazon expedites its dominance by integration of device

distribution and content

29.4%41.8%

54.4%

70.6%58.2%

45.6%

Dec-11 Jan-12 Feb-12

All Other Android Tablet

Amazon Kindle Fire

Sources : comScore(2012)

[ Platform Players ]

• View content business as a way to boost sales of devices

•Target K-12 market with authoring tool and interactive content

• Try to overcome the gap against Amazon by introducing high performance tablet (Nexus7)

•Promote single brand(Google play) to provide comprehensive digital goods

[ Publishers ]

• Some publishers to take down books for Amazon

•Launch own Apps

Book

Responses from competitors

E-Book

19

E-book market evolves from its early model to new era

Various Pricing Model New Features New Content

• Rental

• Subscription

• Sales by chapter

• Social

• Gamification

• Interactivity

• Magazine

• STMs & Professionals

(in addition to trade)

• Self-publishing

Book

Contents

20

Agenda

• Digital Content Market Overview

• Trends

• Implications

Ubiquitous High-Speed Wireless Access

Unprecedented Global Technology Innovation

Plug & Play Start-up Environment

„Social‟ for Content Distribution

Beautiful / Relevant / Personalized / Curated Content by Consumers

(Source : Internet Trends, Mary Meeker, KPCB, 2012)

21

Mobile will bring stunning changes, and some argue it’s still

spring training step

Will focus on content curation/distribution & social here

22

OS players will continue to drive market. Content creators in

various areas will gain traction by active involvement in distribution

PRESENT FUTURE

•Anybody to become service platform by horizontal and vertical play

•Expanded openness of platform

(App → Music, Video...)

• Users to create, re-create, distribute content directly

• Smart device introduction

• Increased consumption of digital content • Heavy competition among service platform• Expansion of authoring tool on smart

devices

•Commoditized network and content coverage

•Era of open platform and proliferation of App

•Big players(mainly OS players) to become service platform

Key driver

Little difference in “Acquisition”

and “Consumption”

Consumption

Content

Unmet needs exist mainly for

mobile Area from “Discovery”

and “Share” stand point

Cloud Storage

Cloud Play

N-Screen

AcquisitionDiscovery

Sharing

Easy to pay

Social Share

Personalization

Search

Pricing Scheme

Spectrum of Content Usage

23

Discovery and sharing needs in content consumption cycle appear

to increase

Key Trend

• Improve efficiency by building self-fulfilling eco-system

• Invest for scalability, not for profitability

Global big players solidify their ecosystem through vertical

integration and horizontal expansion

ContentPlatform

OS/ ServiceNetwork Device

Media Hub /

Smart Hub

Nexus7

Tight Integration

24

[ ABC News ]

Simultaneous usage, not sequential usage, is more focused

today, and a number of new services are developed

25

Contents

26

Agenda

• Digital Content Market Overview

• Trends

• Implications

27

Summary

Implications

•Mobile first

•Eco-system is pre-requisite

•Content curation and social for better discovery and sharing