Strategy Analytics' latest consumer survey indicates great uncertainty over the potential health effects of watching 3DTV. 17% of our 2000 US survey respondents say they believe that watching 3DTV will cause damage to their eyes. Perhaps even more significant is that more than half of respondents are uncertain whether 3DTV has a health impact one way or the other. Faced with that level of doubt, 3DTV marketers - both TV set manufacturers and broadcasters - have some work to do to convince people that 3D is something worth risking their health on. The truth of the matter remains a subject of some debate. In response to the fact that some viewers report feeling unwell after watching 3D, or can only watch comfortably for limited periods, some claim that these impacts will be reduced as the technology matures. Whatever the case, the industry clearly must get to grips with the communications issue before unsubstantiated rumours get out of hand. We'll be presenting more details on our new 3DTV research at this year's IBC in Amsterdam. You can also hear BSkyB's Brian Lenz discuss his own company's plans for 3DTV. Attendance is complimentary but we encourage pre-registration as space is limited: Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

We're delighted to announce our plans for this year's IBC in Amsterdam. For many years now Strategy Analytics has offered an analyst forum focusing on key topics relevant to the television and broadcast industries. This year we are focusing on 3DTV, still very much the hot topic in the industry, especially as we head towards the commercial launch of 3D residential services in Europe when Sky launches 3D on October 1st. With that in mind we are pleased that BSkyB's Brian Lenz, who has spearheaded the company's development of a 3D service, will join us to discuss our latest research findings and update everyone on the latest news from BSkyB. We'll present hot-off-the-press consumer findings from our latest surveys, and our colleagues from D. I. S. Consulting will also unveil the latest research from the production community. It should be a great session to kick off the first full day of the show. The event is free of charge but as we have limited space we're expecting a full house so please register your interest as soon as possible. 3DTV Analyst Forum at IBC 2010: Strategy Analytics and D. I. S Consulting Saturday 11th September 2010 Holiday Inn, "Manhattan" Room, De Boelelaan 2, 1083 HJ Amsterdam, The Netherlands Schedule 8.00-8.30 Networking Breakfast 8.30-9.10 New 3D Research: Analyst Presentations 9.10-9.30 Guest Speaker: Brian Lenz, Director of Product Development, BSkyB 9.30-10.00 Panel and Audience Q&A Client Reading: Video Capture Devices: Global Market Forecast

Thomas Edwards, VP, Digital Television Testing & Evaluation, at Fox, was speaking this morning at the Digital Cinema Summit at the Las Vegas Convention Center, one of the many conference programs running concurrently with the NAB Show over the next few days. Fox, of course, is a sister company to BSkyB under the News Corp parent, and BSkyB, as we have regularly reported, is a firm advocate of 3D as the next major business opportunity. So it would be interesting to see Fox and BSkyB executives debate the business viability of 3D after Mr Edwards’ comments that he “doesn’t know if 3D can make money”. Edwards listed some of the obstacles he is facing as Fox experiments with 3D production and broadcasting. 3D equipment, particularly cameras and rigs, are still “hard to obtain”, and are fragile, large and heavy. Stereographers, the specialists responsible for the 3D experience, need to be trained. There are design issues such as placement of the score box and other graphics. There are issues of quality with broadcast 3D, which today (under BSkyB and Fox’s current side-by-side approach at least) is sub-HD quality. And there are challenges associated with keeping the 3D material in synch throughout the various stages of production. Edwards also didn’t seem to be convinced that 3D necessarily improved on the 2D experience when it comes to sports productions. He noted in particular that wide shots, such as a view of a full half of a soccer pitch, tended to reduce the players to “matchstick figures”. In certain close-ups, however, 3D clearly offered a benefit, allowing viewers to appreciate the positioning of players more accurately than in 2D. Edwards called for the beginning of mass production of 3D cameras, rather than the current range of custom-produced two-camera rigs, and that they should be much smaller than present designs. No doubt we will see some examples of early “integrated” 3D cameras here at the NAB Show, with Panasonic for one expected to announce its first model. Register for Strategy Analytics' Analyst Breakfast at the NAB Show Client Reading: Global Audiovisual Market Forecast

As a long term Sky TV customer I’ve often been frustrated at the lack of attention the company gives to its loyal customers relative to its interest in winning new ones. While I understand the business goal – winning new customers is always much more expensive than retaining existing ones – as a customer it can leave a sour taste in the mouth. That taste was sweetened this morning by an unexpected call from Sky customer services offering me a new HD DVR, together with 12 months’ subscription to HD channels, all at no additional cost. No set-top box charge, no “set-up fee”, no installation charge, no further commitment. The normal fee for an existing Sky customer to upgrade to this package, as still described today on the company’s website, is £180 - £60 set-up cost plus 12 months of HD channels at £10/month. From £180 to zero – that’s what I call a discount. I couldn’t let the fact that I don’t yet have an HDTV, or my general rule to reject all cold calls, prevent me from accepting this offer. Sky’s latest HD DVR should represent a vast improvement over my 9-year-old Sky+ model, in speed and ease of use, interface and EPG, and storage capacity. I won’t get the benefit of the HD channels, but maybe, just maybe, those free channels will be enough of an incentive for me finally to replace my CRT TV. Sky’s initial financial loss on this, and presumably many other HD upgrades, results from their determination to remain competitive in the years to come. The resistance of many of their customers to subscription fees is high, as shown by our own user research. We found that, while Sky’s overall satisfaction ratings are high, more than a quarter of Sky’s customers would switch to another provider offering the same service for 10% lower monthly fees. We also found that more than a third of Sky’s customers do not rate the company as meeting expectations on value for money. With this new offer, although it is limited to selected existing customers, is aimed at the right spot: to make sure its subscribers are not lured away by competitors such as Freeview HD, Freesat HD, Virgin Media and BT Vision. While none of these alternative providers offer the exact same package as Sky, they are each, in their own way, becoming more competitive in certain aspects. Slowly but surely it seems as though the UK pay and multichannel TV sector is finally opening up to greater levels of competition. Whether Sky’s financials can withstand the impact of these customer retention strategies remains to be seen. David Mercer Client Reading: BSkyB Results Shine But Warning Signs Evident In Customer Value Ratings

The rapid re-emergence of 3D in the television and video industries is beginning to reach “real” consumers. I was tempted into the Sony Style store in Boston’s Copley Mall recently by a window poster offering the chance to “see 3D in action”. After circling the store with no sign of said “3D in action”, a sales consultant pointed me, with slight embarrassment, to a PS3 connected to an LCD TV. “This should be showing 3D, but we were sent the wrong box.” Further inquiry revealed that “Singapore”, whatever might be there, had shipped a faulty hard disk drive for installation in the PS3, and the store was awaiting a new module, presumably along with the sort of firmware upgrade to be offered to all PS3 owners later this year to enable 3D Blu-ray playback. Personally I have seen enough 3D demos to last a lifetime, so this disappointment represented no great loss. But Sony will clearly have to avoid such problems for US-based customers interested in 3D Blu-ray players and TVs once they are offered for sale. Effective in-store technology demonstrations have always been one of the major obstacles to commercial success, and 3D will be no different. Minor issues such as these will be overcome as the technology matures, but they will be replaced by other practical questions such as how 3D glasses are stored, demonstrated and secured. Retailers will have other headaches too, as an excellent article in specialist trade publication, CE Daily, revealed last week. The incompatibility of passive (side-by-side) and active (eg Blu-ray) 3D systems is one of the major faultlines in the realm of 3D standards. The Blu-ray 3D standard specifies only the active approach, which is generally accepted to offer the best quality available today, and will be compatible with TVs with active displays and the transmitter necessary to communicate with active shutter 3D glasses. Panasonic recently became one of the first major companies to announce sales of new, active 3D TVs. It will sell 50” and 54” plasma sets in Japan, starting at around $4800. One pair of glasses will be included in the bundle; additional pairs will retail at around $112 each. But, as CE Daily’s Barry Fox reports, it seems, as long suspected, that some TVs will be launched which will only support passive 3D technologies, from vendors such as Hyundai and JVC. These TVs, which are likely to cost considerably less than the first active 3D sets, will be suitable for broadcast 3D services from Sky, which are only using the passive approach. But they will apparently not be compatible with 3D Blu-ray players (including the PS3), at least not without some modification or add-on transmitter device. They will also apparently not incorporate the latest HDMI 1.4 ports required for 3D Blu-ray and other potential active 3D systems. We wrote nearly a year ago that BSkyB, which had just announced its intention to launch a 3D service, was unconcerned by 3D standards issues. But that narrow perspective ignored the dilemma which now apparently faces retailers anxious to push sales of new 3D devices and software. Sky’s 3D customers will need new TV sets; but will retailers tell them (will they even know) that some of those TVs may not play 3D from Blu-ray discs? Buyer, as always, beware. Client Reading: Consumer Imperatives for Digital TV Media Browsers

I’ve spent the day with Panasonic’s European marketing team and other analysts discussing the future of 3D. The debate ranged from technical issues such as passive v. active and full v. half HD, content production challenges, and marketing in-home 3D products to consumers. Panasonic is a leading light in the drive to develop a 3D home video standard based on Blu-ray Disc technology. While nothing can yet be publicly announced it seems as though things are progressing well and that announcements should be expected in the not-too-distant future. We were also given demonstrations of 3D content from a specially adapted BD player, on a Panasonic 103” plasma using active glasses. I had seen much of this content before, although some new clips confirmed the system’s potential. Once again the Olympics material was most impressive, although Panasonic did not use some of the best clips I had previously seen. The discussion of content production led to a debate around intraocular distance as a key determinant in viewer satisfaction at the 3D experience. It was suggested that since many of the now-familiar 3D movies have been targeted at the children’s market, that the 3D aspect of the movie has been tailored towards the smaller distance between children’s eyes rather than those of adults, and that this is one explanation why adults may see a less satisfactory 3D effect than children. If this is indeed the case, it would seem to be another barrier that the emerging 3D market will have to overcome, if certain pieces of content can only be viewed satisfactorily by certain age groups, or, more precisely, those with particular interocular characteristics. Much of the discussion centered on competition between emerging 3D providers, not least broadcasters like BSkyB, which recently announced its intention to launch 3D content in 2010. There will inevitably by differences in the technology strategies across these different platforms, and the challenge for all players is to minimise the potential confusion which results. This will be particularly vital in the area of 3D-ready TVs. As I indicated previously, such products have not really begun to reach the European markets yet, unlike in the US. But when they do (expect European marketing to start in earnest in 2010) communication to consumers will have to be crystal-clear on which 3D content will play successfully on which 3D-ready TVs. Sky will surely be pushing its own “standard” and labelling, and that is likely to encourage others to tell their own stories. As I announced before, Sky does not care about any 3D standards debate. I’m not pessimistic about 3D in general. It will certainly penetrate home markets (TV, video, games) in various ways over the coming years. But the danger, as always, is that the opportunity will not be maximised if industry players focus on their own narrow interests rather than communicating clear, consistent messages to consumers. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

After another set of strong financials BSkyB has been showered with praise from financial and media commentators alike. As I indicated at the time, the vast majority of customers plan to keep spending – the same or more – on digital television, in spite of the economic gloom and uncertainty. Sky’s long established premium content and technology innovation strategies have apparently put the company into an invincible position. But delving further into our survey findings a Strategy Analytics report has revealed a key weakness in Sky’s competitive position. Satisfaction with the Sky service is generally strong, but Sky’s value for money ratings are the weakest of the major competitors. Overall we found that more than a third of Sky digital TV subscribers were less than satisfied with the value for money of this service, compared to a quarter of Virgin Media digital TV customers and only 7% of Freeview users. We also found significantly fewer customers of Sky, compared to those of Virgin Media or Freeview, who felt that value for money exceeded their expectations. Of course people could argue that we are comparing apples and pears, since Freeview by definition is a free-to-access service. Perhaps the few people who felt Freeview was not value for money thought that the price of the set-top box or TV set was too high. And it would certainly be interesting to rate Freeview against the value of the television licence fee (£142.50 annually), since most people probably do not associate the two as directly related. But as Sky itself recognises, Freeview does present a possible alternative for price-conscious TV viewers, even if Freeview’s range of content falls well short of what is available from Sky. And our survey suggests that Virgin Media, the other major pay TV competitor, has higher value for money ratings than Sky. This appears to be a sign of hope for the cable company as it seeks to become more aggressive in customer acquisition over the coming months. Twitter: twitter.com/DavidMercer_SA Client Reading: BSkyB Results Shine But Warning Signs Evident In Customer Value Ratings

BSkyB will issue its quarterly results tomorrow and we are projecting 100,000 net new subscribers for the latest quarter. This will bring the company’s subscriber base to around 9.4 million. Sky is on course to hit the 10 million subscription mark by Q3’10, a target it set some years ago. Despite a troubled economy and diminished consumer confidence, Sky has kept growing its subscriber base over the past year. This falls in line with survey research just completed by Strategy Analytics, which showed that 89% of UK digital television consumers plan to spend “the same or more” on their television service in the upcoming year as they did in the previous 12 months. Our survey also found that, faced with the economic necessity to reduce household expenditures, only 8% of Britons would drop their pay tv service altogether; 40% would scale back to a lower tier of service, however. There has been much speculation that spending on home-based activities would benefit from the recession, and that certainly seems to be the case as far as digital TV is concerned. Twitter: twitter.com/DavidMercer_SA Client Reading: Western Europe Digital Television Forecast: 1H'09

Niklas Rönnblom, analyst at Ericsson’s ConsumerLab, recently blogged about the company’s white paper called “What Consumers Want from TV/Video Solutions”. This document discusses how television and video consumption is changing and the challenges this brings for service providers. The background assumption in the paper is, not surprisingly for Ericsson, the concern that the “managed” TV/video industry will suffer because of changes in consumption habits. A key conclusion is that this industry will not be able to respond effectively until regulations are changed to create a “level playing field” so that traditional providers can compete fairly with emerging content and service providers. Finally, the report’s recommendation is that “The goal should be to offer user-centered high-quality services that motivate consumers to stay legal; not a system or service that “forces” them to stay legal”. The paper offers a series of logical arguments to support the notion that managed video/TV services should play an important role in keeping illegal content distribution to a minimum. It even attempts to quantify the relative value of countermeasures such as “fear of getting caught” as factors in consumer decisions over which content to consume. Thus far the paper does a good job of analysing the impact of illegal content distribution on the traditional, ie legal, industry. One or two observations should be challenged, however – first, the assumption that “traditional TV distributors, as well as telecom service and content providers, are failing to satisfy consumer demand for TV/video services”. This statement will come as a surprise to successful “traditional TV distributors” such as BSkyB, which continues to report customer and revenue growth quarter on quarter during the toughest economic environment in living memory. There certainly are some traditional TV distributors which are not performing as well as others, but there are different reasons in every case, and it is certainly not always because they are not offering their customers clips from Youtube or movie sharing services. Secondly, the paper’s motivation analysis is surely flawed: the main reason people watch TV/video is to be entertained, above and beyond every other reason. Instead, Ericsson positions this as a secondary factor behind the social role of content; people discuss TV shows, and feel socially excluded if they haven’t watched them; or they make copies of these shows and give them to their friends. While these social functions clearly have some relevance for many people, they are surely secondary, even for so-called “digital natives”. Would anyone really watch a boring TV show just because they thought everyone else was watching it? Ratings data would suggest otherwise. There is no doubt that managed service providers need to continue to roll out new services such as on-demand, personal content storage (DVR), integrated communications, HDTV and 3D. But it is a mistake to think that successful providers are not already doing this. The paper’s real contention is that these firms will not be able to compete when the same content is available illegally (and free of charge) from non-managed services. The paper does not have the space to go into wider issues such as the disaggregation of access and content, and the impact of emerging advertising business models (see my recent entries from the Future of Broadcasting content for further discussion). These questions will ultimately have a greater impact on the success or failure of managed TV service providers than unauthorised distribution of content. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

I’ll be heading to London’s Le Meridien hotel in Piccadilly next week to hear some of the UK’s top media decision makers debate the future of broadcasting; hence the event’s name: the Future of Broadcasting conference, courtesy of the IEA (Institute of Economic Affairs) and MarketForce . The first morning’s panel alone should be worth the admission fee. There can’t be many occasions when top execs at the BBC (Caroline Thomson), ITV (Michael Grade), Five (Dawn Airey) and BSkyB (Mike Darcey) have gathered together around the same table. Indeed, there might be a few hints at anti-trust activity if they did it too often, given that they represent more or less the entire UK television industry, with the primary and unfortunate exception of Channel Four – they will be appearing separately in the following session, but I don’t suppose we should read too much into that. I just hope the panel’s chairman manages to get these senior figures to avoid the usual platitudes about the strength of the UK broadcast industry, British TV being the best in the world and the impact of the Digital Britain report, and address the awkward issues, such as: - Why does the BBC need so much money from licence fee payers? - Is Sky’s domination of the UK pay TV market a good thing for British broadcasting? - Can ITV survive without being acquired by a major overseas media firm? Given that there are only 20 minutes for discussion this seems unlikely, but we live in hope. In any case, it looks like a fascinating couple of days and I’ll be reporting back whether or not the key questions are answered. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008