MAGNA Global

On-Demand Quarterly

Fourth Quarter 2007 Review

March 2008

Contact: Brian Wieser, CFA, Director of Industry Analysis

Tel: 917-542-7008 Email: brian.wieser@magnaglobal.com

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 MAGNA Global On-Demand Quarterly: March 2008
• Overview
• DVRs: Crouching Hardware, Hidden Software
• Addressing Advertising
• DVR and VOD News
• Appendix 1: DVR and VOD Forecast Data
• Appendix 2: DVR Forecast Chart
• Appendix 3: VOD Forecast Chart
• Appendix 4: Internet Access Forecast Data
• Appendix 5: Internet Access Forecast Chart

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 Overview

• We have updated our On-Demand models to account for the most recently completed quarter,
modified our historical data slightly to incorporate new information about the past and extended our
forecasts through 2012

• Our year-end 2012 forecast for DVR subscriber households is 42.7 million (36.3% of TV households), up from
our estimate of 24.6 million (22.1% of TV households) as of the end of the fourth quarter of 2007

• By 2012, we expect that true Video-on-Demand (distinct from the simulated VOD offered by DBS
providers DirecTV and EchoStar) will reach 61.9 million households (approximately 52.7% of television
households). This compares with 36.0 million VOD households (32.3% of total TV households) at the end of
the fourth quarter of 2007

• As of the end of December 2007, we estimate that 63.9 million households had broadband access out of
116.8 million total households. We estimate that internet access was enjoyed by approximately 72.4
million households by the end of the fourth quarter of 2007. We expect that total broadband access will
rise to cover 87.5 million households by the end of 2012. These figures have been revised from prior
estimates to reflect new information from recent US Census data for October 2007, and now exclude
rapidly growing mobile broadband services from our totals. These latter figures are likely duplicative, as
they represent mostly secondary internet access services

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 DVRs: Crouching Hardware, Hidden Software

DVR set-tops will become pervasive as hardware prices fall, but use will continue to require a service fee
• During its annual investor day last month, DirecTV provided data associated with the cost of the set-top
boxes it supplies to its customers
• DVRs have fallen significantly in price, from $245 each in early 2005, to $150 during the present quarter – a
drop of almost 40%
• During the same time period, DVR subscription fees for DirecTV’s basic subscribers have held generally
constant at $5.99 per month(a). Other MSOs continue to charge more than $10 per month for DVR service,
with generally rising – not falling – pricing, despite less expensive hardware
• These data points highlight our oft-stated view of cable and satellite operators’ business models around
DVRs: they are a value-added service. Although falling prices of DVRs mean that hard drives will
increasingly be included in standard set-top boxes, DVR subscription fees are not going away. MSOs focus
on the profitable deployment of technology, and this in turn means that the majority of consumers who
focus on value-oriented basic video services will be unlikely to adopt advanced DVR services any time
soon
DirecTV OEM Set-top Box Costs

Source: DirecTV, February 2008 Investor Presentation

(a) As of October 7, 2005, DirecTV was charging $5.99 per month for DVR service according to a New York Times article from the same
4 date. On DirecTV’s website as of March 2008, the fee remains $5.99 for DVR services on basic packages
 Addressing Advertising

Addressable advertising holds promise for TV’s future, as the technical infrastructure gradually falls in place
• Addressable advertising is viewed by many as an optimal form of marketing communications. Getting
the right message to the right person without “waste” is clearly appealing. But how close are we to
making addressable advertising a reality in a television context? Incrementally closer as it turns out,
although widespread opportunities for marketers to use the technology are at least a few years away
• Defined as the delivery of unique commercials to unique set-top boxes (as a proxy for unique viewers or
families), addressable advertising can be delivered with Video on Demand (VOD) streams or through
insertion into traditional linear content
• Although VOD offers the more significant opportunity for addressable advertising today, its limited scale(a)
suggests that linear TV will remain the primary environment for application in the future. However, this will
only be feasible when combined with the unicast (rather than broadcast) delivery of traditional video,
accomplished through a technology known as switched digital video (or SDV), or via IPTV delivered by a
telco’s video service (such as AT&T’s U-Verse)
• Deployments of SDV are driven by cable operators’ needs to efficiently manage bandwidth, an
important proposition as they compete with satellite operators’ provision of bandwidth-intensive high
definition (HD) channels. Because SDV means that a channel is only “served” when requested,
bandwidth is not consumed by channels that no-one is watching. Vendors of SDV software such as
BigBand Networks claim 50% bandwidth improvements from their solutions

Traditional Broadcast Video Unicast / Switched Digital Video

Video Signals
Video Signals

Source: BigBand Networks

(a) We estimate VOD ad insertion opportunities as representing less than 0.1% of total TV inventory today. To illustrate, if during 2008 each of the 300 million
people in the United States viewed 32 hours of TV per week, this would equate to nearly 500 billion person-hours of TV viewed annually. Assuming 16 minutes of
commercials per hour, or 32 commercial impressions per person-hour, television generates 16 trillion commercial impressions. By comparison, with VOD streams
served by Comcast likely to total 4 billion, Time Warner close to 2 billion, and all others combined another 2 billion, this equals 8 billion VOD streams served during
2008, with fewer than 1 commercial impressions per stream. It would take a doubling of the number of households with VOD, a doubling the number of views of
5 VOD per household and 5 commercial impressions per asset to equate to even 1.0% of traditional commercial impressions
 Addressing Advertising (continued)

• Cable operators are expected to continue broadcasting the most popular channels (traditional TV
networks as well as some cable networks), and switch all others. After the appropriate ad serving
technology is implemented, addressable advertising will be possible on networks which are switched – on
inventory representing less than a third of all TV viewing, and then, only on inventory controlled by the
cable operator (typically 2 minutes per hour, or 10-15% of total inventory on these networks). Conversely,
all video served by AT&T’s U-Verse is switched today, so addressable advertising could theoretically be
included on all inventory they control
• On the following page we summarize recent comments from cable operator management teams
related to this technology, as well as our near-term forecasts
• Although we expect that cable operators will aggressively expand the use of SDV as much as possible for
its broader economic benefits, in the near term, addressable advertising will continue to be the domain
of direct mail, e-mail and online display and search advertising. However, the potential for applying this
technology to the dominant form of media consumption – television – will sustain continued efforts from
MSOs, programmers, technology vendors and advertisers alike in the years ahead

Most popular channels will be

broadcast in conventional manner,
and will not likely have capability for
unicast addressable advertising

Long-tail of channels will be switched,

and will likely have capability for
unicast addressable advertising

6 Source: Comcast Investor Presentation, May 2007

 Addressing Advertising (continued)

• More than 17 million U.S. households – at least 15% of the total – will receive some or all of their
“traditional” TV/video services through unicast / switched digital video by the end of 2008
• This represents households with potential for receiving unicast addressable advertising through
linear broadcasts
• However, addressable advertising software has not yet been deployed beyond trials
• The primary near-term use of SDV will be to expand the availability HD content

MSO YE2008 Estimated Digital Notes

Subscribers with SDV
Comcast 2.7 million •Trialing in two markets (Cherry Hill, NJ + Denver) as of Jan 2008
•15% of footprint to have SDV deployed by end of 2008
Time Warner Cable 7.0 million •9 of 23 divisions as of end of 2007, presently installing in 9 more
•Will deploy it in every division “that needs it” by end of 2008
Charter 1.5 million •Tested rollout in LA
•Complete deployment expected across majority of footprint by end of 2009
Cox 1.0 million •3 divisions deployed as of August 2007 (Phoenix, N.Virginia, Orange County)
Cablevision 2.8 million •Deployed SDV across entire system
Bright House 1.0 million •Launched in Orlando system in 2007
Mediacom 0.2 million •Introducing in 3 markets in 2008
AT&T 1.1 million •Entire system unicast at launch
Total 17.3 million

7 Source: MAGNA Global, Light Reading, Company Reports

 DVR and VOD News

DBS providers DirecTV and EchoStar remain the leading suppliers of DVRs

• We estimate that DirecTV added 300,000 DVR subscribers, as more than 50% of new subscribers ordered
advanced set-top boxes (HD and/or DVR). By our estimates, the company now has approximately 5.2
million households with DVRs (30.9% of total subscribers)

• Despite a smaller overall subscriber base, similar dynamics are driving EchoStar’s DVR subscriber levels,
which we estimate now total 5.7 million households (41.6% of total subs)

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 DVR and VOD News

Comcast remains the leading provider of DVRs and VOD among cable operators

• The company reported that it now has 6.3 million HD and/or DVR customers as of the end of 2007. With
approximately 275,000 DVR additions by our estimates, we believe the company now has 3.8 million DVR
homes (equal to 15.8% of its total customer base). Comcast also has by far the largest number of
subscribers with access to video-on-demand: virtually all of its 15.2 million digital subscribers have access at
the present time

• Subsequent to the end of the quarter, Comcast provided new VOD viewing data for these customers.
Reporting 7 billion VOD views from launch in 2004, the company posted 1 billion views between November
and March 19, growing at a rate of 275 million views per month. This is up from a rate of 250 million per
month last fall and ~200 million per month earlier last year, outpacing the greater than 20% growth in
subscribers with access to VOD over the same time period

• In its press release, Comcast noted that that its 7 billion historical views generated 1 billion hours watched,
indicating that historically the average view lasted 8 minutes in duration. However, for the most recent
month, Comcast also indicated that its 275 million views generated 130 million hours of viewing on a
current monthly basis, equivalent to 28 minutes in duration per average view

• This rapid increase in viewing time likely reflects the change in assets available to Comcast’s VOD
customers, which at one time were dominated by shorter clips such as music videos, and now include
hundreds of free movies alongside thousands of pay movies. According to the company, their customers
now view 40 million movies per month (almost 3 per VOD customer per month) through VOD

• To put total VOD viewership in a broader context, assuming the 15.2 million VOD households’ total TV
consumption is in line with the rest of the country’s at 58.2 hours per week, or 256 hours per month, total
VOD viewing accounts for 3.3% of total TV viewing among these subscribers

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 DVR and VOD News

Other highlights reported during the quarter include:

• Time Warner Cable added 253, 000 DVR subscribers, and now reach 23.1% of its basic cable homes. The
company did state that it delivered 1.3 billion streams for all of 2007, implying approximately 300 million
VOD streams during the final quarter of the year, or 13 streams per VOD household per month, roughly
consistent with totals reported earlier in the year

• TiVo’s stand-alone DVR subscriber total was roughly flat at 1.7 million as of the end of that company’s
fourth quarter

• Charter reported that its VOD orders are up by 40% compared with a year ago, over a time when its VOD
subscribers increased by 15%. Advanced video subscribers – including HD and DVR subs – grew by 60%
year over year. We estimate the company now has 462,000 DVR subscribers, equivalent to 16% of its
digital subscriber base

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 Appendix 1: DVR and VOD Forecast Data

Brian Wieser, CFA MAGNA Global On-Demand Deployment and Subscriber Estimates
MAGNA Global Director of Industry Analysis
(917) 542-7008
2001A 2002A 2003A 2004A 2005A 2006A 2007A 1Q08E 2Q08E 3Q08E 4Q08E 2008E 2009E 2010E 2011E 2012E

Total US TV Households 102,200 105,500 106,700 108,400 109,600 110,200 111,400 111,447 111,860 111,952 112,800 112,800 113,928 115,067 116,218 117,380
• YOY Growth ------ 3.2% 1.1% 1.6% 1.1% 0.5% 1.1% 1.0% 0.8% 0.8% 1.3% 1.3% 1.0% 1.0% 1.0% 1.0%

Total Multichannel Subscribers 89,980 92,881 95,003 97,562 98,698 98,114 99,769 99,716 99,948 101,432 101,945 101,945 103,331 104,313 104,850 105,241
• YOY Growth ------ 3.2% 2.3% 2.7% 1.2% -0.6% 1.7% 1.8% 1.9% 2.0% 2.2% 2.2% 1.4% 0.9% 0.5% 0.4%
• % of TV Households With DBS, Cable or TelcoTV 88.0% 88.0% 89.0% 90.0% 90.1% 89.0% 89.6% 89.5% 89.4% 90.6% 90.4% 90.4% 90.7% 90.7% 90.2% 89.7%
Digital Multichannel Subscribers 33,747 41,025 46,462 52,485 58,178 63,972 71,205 72,671 74,149 76,171 78,079 78,079 87,014 93,152 97,928 101,608
• Digital Penetration 37.5% 44.2% 48.9% 53.8% 58.9% 65.2% 71.4% 72.9% 74.2% 75.1% 76.6% 76.6% 84.2% 89.3% 93.4% 96.5%

VOD-Enabled Subscribers 3,243 7,660 12,910 19,278 24,160 29,902 36,030 37,485 38,736 40,249 41,797 41,797 49,248 54,340 58,503 61,857
• YOY Growth ------ ------ 68.6% 49.3% 25.3% 23.8% 20.5% 18.7% 16.6% 16.4% 16.0% 16.0% 17.8% 10.3% 7.7% 5.7%
• % of Cable Footprint Enabled With VOD 19.4% 35.3% 52.0% 69.7% 76.6% 85.6% 88.8% 89.9% 90.5% 90.5% 90.9% 90.9% 91.2% 91.4% 91.4% 91.9%

MSO DVR Subscribers 620 1,018 2,212 5,495 10,610 16,719 22,746 24,160 25,458 26,776 28,161 28,161 32,356 35,941 38,795 41,257
• YOY Growth ------ ------ 117.3% 148.4% 93.1% 57.6% 36.1% 32.4% 30.2% 26.8% 23.8% 23.8% 14.9% 11.1% 7.9% 6.3%
• % of Basic Subscribers with DVRs 0.7% 1.1% 2.3% 5.6% 10.7% 17.0% 22.8% 24.2% 25.5% 26.4% 27.6% 27.6% 31.3% 34.5% 37.0% 39.2%

Stand-Alone DVR Subscribers 315 443 704 1,269 1,621 1,851 1,821 1,761 1,691 1,621 1,591 1,591 1,471 1,401 1,401 1,401
• YOY Growth ------ ------ 58.9% 80.3% 27.7% 14.2% -1.6% -4.3% -7.1% -10.0% -12.6% -12.6% -7.5% -4.8% 0.0% 0.0%
• Net Additions ------ 128 261 565 352 230 (30) (60) (70) (70) (30) (230) (120) (70) 0 0

Total DVR Subscribers 935 1,461 2,916 6,764 12,231 18,570 24,567 25,921 27,149 28,397 29,752 29,752 33,827 37,342 40,196 42,658
• YOY Growth ------ ------ 99.6% 132.0% 80.8% 51.8% 32.3% 29.0% 27.0% 23.9% 21.1% 21.1% 13.7% 10.4% 7.6% 6.1%
• DVR Subscribers as % of TV Households 0.9% 1.4% 2.7% 6.2% 11.2% 16.9% 22.1% 23.3% 24.3% 25.4% 26.4% 26.4% 29.7% 32.5% 34.6% 36.3%
• DVR Subscribers as % of Multichannel Households 1.0% 1.6% 3.1% 6.9% 12.4% 18.9% 24.6% 26.0% 27.2% 28.0% 29.2% 29.2% 32.7% 35.8% 38.3% 40.5%

11 Source: MAGNA Global, Company Reports

 Appendix 2: DVR Forecast
DVR FORECAST

US DVR Subscribers - Cable, DBS and Stand-Alone Units

120,000.0

100,000.0

80,000.0
Subscribers (000s)

Total Multichannel Subscribers 42,658.3

60,000.0
Total DVR Subscribers 40,196.1
37,341.9
33,826.6
40,000.0
29,751.6
24,567.4
18,570.1
12,231.0
20,000.0
6,763.8
2,915.7
935.0 1,460.6
-
2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E

12 Source: MAGNA Global, Company Reports

 Appendix 3: VOD Forecast
VOD FORECAST

US Homes With VOD Access

70,000.0
61,857.4
58,502.5
60,000.0
54,339.9
49,248.1
Homes With Access (000s)

50,000.0
41,796.8
36,029.8
40,000.0
29,902.4
24,160.4
30,000.0

19,277.5
20,000.0
12,910.2

10,000.0
7,659.6
3,243.2
-
2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E

13 Source: MAGNA Global, Company Reports

 Appendix 4: Internet Access Forecast Data
INTERNET ACCESS FORECAST

Brian Wieser, CFA MAGNA Global Internet Access Forecast

MAGNA Global Director of Industry Analysis
(917) 542-7008
2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E
Total Households (Census) 112,215.0 109,608.9 111,000.0 111,545.8 113,324.5 114,738.6 115,838.7 116,835.6 117,419.7 118,006.8 119,186.9 120,378.8 121,582.6
• YOY Growth 3.3% -2.3% 1.3% 0.5% 1.6% 1.2% 1.0% 0.9% 0.5% 0.5% 1.0% 1.0% 1.0%

Total Residential Broadband Access 5,067.9 10,810.5 17,099.9 25,635.0 34,843.7 43,432.4 54,772.4 63,905.5 71,221.8 74,769.1 78,615.7 82,579.8 86,664.1
• % of Internet Access 10.6% 19.3% 29.1% 41.8% 54.2% 64.8% 78.6% 88.2% 95.2% 96.0% 97.0% 98.0% 99.0%
Total Narrowband Only(a) 42,623.4 45,189.5 41,619.1 35,743.1 29,439.7 23,603.6 14,875.6 8,532.5 3,574.6 3,115.4 2,431.4 1,685.3 875.4
• % of Internet Access 89.4% 80.7% 70.9% 58.2% 45.8% 35.2% 21.4% 11.8% 4.8% 4.0% 3.0% 2.0% 1.0%
Total Residential Internet Access 47,691.4 56,000.0 58,719.0 61,378.1 64,283.3 67,036.0 69,648.0 72,438.0 74,796.4 77,884.5 81,047.1 84,265.1 87,539.4
• Internet Household Penetration 42.5% 51.0% 52.9% 55.0% 56.7% 58.4% 60.1% 62.0% 63.7% 66.0% 68.0% 70.0% 72.0%
• Net Adds 9,687.9 8,308.6 2,719.0 2,659.1 2,905.2 2,752.7 2,612.0 2,790.0 2,358.3 3,088.1 3,162.6 3,218.0 3,274.3

(a) Represents implied number of subscribers to dial-up services who do not also have broadband services

14 Source: MAGNA Global, US Census, FCC, Company Reports

 Appendix 5: Internet Access Forecast

Internet Access - Broadband and Total

100,000

86,664.1
90,000

80,000
82,579.8
78,615.7
70,000
74,769.1
71,221.8
Subscribers (000s)

60,000
63,905.5

50,000
54,772.4

40,000
43,432.4
30,000
34,843.7

20,000
25,635.0 Broadband Total Internet Access
5,067.9 17,099.9
10,000
1,695.2 10,810.5

0
1999A 2000A 2001A 2002A 2003A 2004A 2005A 2006E 2007E 2008E 2009E 2010E 2011E 2012E

15 Source: MAGNA Global, US Census, FCC, Company Reports

 MAGNA Global
On-Demand Quarterly
Contact: Brian Wieser, CFA, Director of Industry Analysis
Tel: 917-542-7008 Email: brian.wieser@magnaglobal.com

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