The Battle for the North American Couch Potato: New Challenges & Opportunities in the Content Market (April 2008, 146 pages) contains detailed analysis by Market & Company, see Table of Contents for what is included in this Report. Sources include hundreds of company interviews, quarterly, annual reports & presentations, FCC, CRTC. Since mid-2006 we have conducted informal interviews & discussion groups with consumers in order to gain insight on usage patterns & preferences, total sample size approximately 1000.

US Commentary (Canadian Commentary follows below):

Broadcast and Cable Networks aim to grow online advertising revenue without negatively impacting their traditional TV advertising and programming revenue.

There is no current economic rationale for Broadcasters & Cable Networks to abandon traditional TV or attempt to accelerate a transition to a total online model. To do so would put $66 billion in traditional TV advertising revenue and $30 billion in cable, satellite, telco TV provider programming fees at risk.

Our forecasts demonstrate that through 2011 Broadcaster & Cable Network online advertising revenues will equal half the gains of their traditional TV advertising revenues ($5 billion and $10 billion respectively), reflecting strong Broadcast/Cable Network online advertising and viewing growth rate gains.

We estimate national Broadcaster/local station and Cable Network (led by Disney/ABC, CBS & Viacom, NBC Universal, News Corp., Time Warner/ AOL) US online TV advertising (we have not included non-TV related) revenues represented 2% ($1.4 billion) of US Broadcast/Cable Network TV advertising revenue in 2007 and forecast 8% ($6.4 billion) in 2011. We estimate the online advertising market at $22.5 billion in 2007, growing to $47.5 billion in 2011.

Online is another complimentary distribution window for the major TV players, which in contrast to traditional TV offers 80% less available advertising minutes/per hour, lower CPM rates, and no lucrative upfront market.

We estimate in 2007 that 9% of TV viewers had also watched full- episode Broadcast/Cable Network TV online, up from 6% in 2006; we forecast 14% for 2008, 19% for 2009, and 23% for 2010. ABC & NBC were the Broadcast, and Viacom the Cable Network, 2007 online full-episode viewing leaders.

Viewing video clips online however currently sees five times as many users as full-episodes (should decline to 3-1 in 2011) of which 75% of the content viewed originally emanates from Broadcaster, Cable Network and Studio content.

For major content players bypassing the cable, satellite, telco TV distributors, and selling direct to the consumer is an economic dead- end. The average TV subscriber home pays $64/month and watches 250 hours of TV, equating to $.25/hour. Apple's run-rate for TV shows ($2 price) sold in 2006 was just 200,000 episodes per TV show, in 2007 this declined to 160,000 episodes per show (per show revenue is underwhelming, equating to an average 30 second TV ad).

We do not forecast any meaningful negative impact on per annum TV subscriber net additions through 2011.

At current run-rate by year-end 2010, 48% of US TV subscribers will have a DVR, up from 25% at year-end 2007. Given the option of watching TV and skipping ads, and watching online video with ads, we believe the majority of consumers will choose TV and the DVR. Bottom line, the DVR will limit full episode online viewing.

Time Warner Cable's VOD innovations, including Start Over, which seek to curb the DVR fast-forward button, will also negatively impact online viewing.

We forecast Stores will represent 44% of 2010 US Movie/TV Rental market revenue, Mail 37%, Kiosks 11% and Online 7%; from 71%, 25%, 4%, and 1% respectively in 2007. Online represented 2% of US Movie/TV sales in 2007 and we forecast 3% for 2010.

Despite the hype, Online (both rental and sales) has major disadvantages compared to the other channels due to its revenue split with the Studios, movie distribution window and other impediments including the cost of purchasing a separate box for delivery from the computer to TV.

Online movie rental is only rational for players such as Apple, Amazon & Microsoft that sell other related products, and for Movielink, which is now owned by Blockbuster, and seeks to reshape its business. We forecast these four players, led by Apple, will have the largest revenue market share.

Apple was responsible for 80% of Online Movie/TV download sales in 2007. As noted above on a per TV show basis sales are in decline; Movies have seen the same fate- on a per movie basis Apple sold 10,000 in 2007 down from 13,000 in 2006. Apple's movie library is highly limited, with Disney representing nearly 60% of all movies sold. DVD sales, with their high margin 80-20 split, are the largest single source of operating income for the Studios, hence there is little incentive to disrupt the traditional distribution channel.

A key competitor to Rental is VOD, which we project will generate more revenue than Stores in 2010.

VOD is a major source of differentiation between cable & satellite TV providers, as satellite can only do a truncated form of VOD using an STB as Dish & DirecTV have started to do. Telco TV providers also offer VOD, which is of increasing concern to cable. In addition, competition from Online, Mail and Kiosk, is intensifying.

Given the aforementioned cablecos, especially Comcast, have sought to grow their libraries and alter movie release windows-a key issue plaguing VOD has been obtaining movies in the Store window- with Comcast as of February offering a small number of day and date movie releases.

Canadian Commentary: Although the Canadian market follows much of what we detailed above, there are significant differences due to Canadian Broadcasters & Specialty Networks dependence on US content.

Canadian Broadcast/Specialty Networks like their US counterparts also aim to grow online advertising revenue without negatively impacting traditional TV advertising & programming revenue.

As in the US, there is no current economic rationale for Canadian Broadcasters and Specialty Networks to abandon traditional TV or attempt to accelerate a transition to a total online model. To do so would put $3.4 billion in traditional TV advertising revenue and $1.7 billion in cable, satellite, telco TV provider programming fees at risk.

As we forecast Canadian Broadcast TV advertising revenue will decline starting in 2009, Broadcasters online gains are net positive. We forecast $83 million of online advertising revenue gains YE2007- YE2011 as opposed to a decline of $150 million in traditional Broadcaster TV advertising (from $2.4 billion in 2007 to $2.25 billion in 2011). We forecast online Specialty Network gains YE2007- YE2011 of $68 million in contrast to traditional Specialty Network TV advertising gains of $400 million.

We estimate TV content players (we have not included newspaper/ magazine, radio revenue, etc) including CanWest, CBC, Corus, CTVglobemedia, Quebecor, online TV-related advertising revenue represented 1% of total TV advertising revenue in 2007 ($40 million) & will grow to 5% ($191 million) in 2011.

Online is thus another complimentary distribution window for the TV players, which in contrast to traditional TV offers 70% less available advertising minutes/per hour & lower CPM rates.

We estimate in 2007 that 6% of TV viewers had also watched full- episode Broadcast/Specialty Network TV online, up from 4.5% in 2006; we forecast 8% for 2008, 11% for 2009, 16% for 2010, and 20% for 2011. In 2007, CTV led both Broadcast & Specialty Network (through its deals with Viacom), online full-episode Canadian viewing.

Canada lags the US in both Broadcast and Specialty full-episode online viewing penetration and advertising revenue (as a percentage of traditional TV advertising revenue) by 18 months.

Compared to their US counterparts, Canadian Broadcasters & Specialty Networks feature very little US full-episode content online as either the price of the US digital rights are too high, the minimum fee is prohibitive, or the digital rights have not been made available to the Canadian market.

Going forward, especially as US players start to generate better online viewing metrics, we expect to see more deals between the US and Canada.

It is highly doubtful US Broadcasters & Cable Networks will make deals for online digital rights with anyone but the Canadian Broadcasters & Specialty Networks given what they pay to US providers in TV programming fees.

We estimate Canadian Broadcasters & Specialty Networks spent $1.1 billion (growing at 10%/annum) on US programming in 2007, over 40% of total programming costs. English Canadians spend 55% of their TV viewing watching US programs.

Based on these programming fees, we see no economic rationale for US Broadcasters and Cable Networks to go around their Canadian counterparts and provide programming online to Canadians. Canadians are currently geo-blocked from major US Broadcasters and Cable Networks website programming.

For major content players bypassing the cable, satellite, telco TV distributors, and selling direct to the consumer is an economic dead- end. The average Canadian TV subscriber home (with 2.4 persons) is paying $51.50/month and watching on average of 250 hours of TV, equating to $.21/hour. Apple sells Canadian TV shows at $2 per episode.

Canadian PVR penetration (9% of TV subs at year end 2007, we forecast 28% YE 2010) is much lower than it is in the US (25% YE2007, we forecast 48% YE2010) due to less aggressive pricing. Given the option of watching TV and skipping ads, & watching online video with ads, we believe the majority of consumers will choose TV & the PVR. But with Canadian PVR penetration so low, the PVR will not have the same limiting effect. Canada has also not seen US-style VOD TV innovation in large part due to the restrictions set by the CRTC, which limit cable's ability to draw advertising revenue from VOD.

Canadians spend on average more than half of their surfing time on US sites and Canadian versions of American sites, which in part accounts for why Canadian online advertising market revenue is just 4% of the US market.

Google has the leading share of the $1.04 billion Canadian online advertising market (we forecast $1.36 billion for 2008), followed by Yellow Pages, Sympatico-MSN, CanWest, CTVglobemedia and Quebecor. Google also has we estimate 69% share of Canadian search.

Though YouTube is the most popular video site for Canadian users, and Facebook & MySpace the most popular social networking sites, Sympatico-MSN has an impressive presence with over 20% of Canadian Internet users accessing its video clips/monthly (we estimate 35% for YouTube), and over 20 million unique users/month.

As there is far less online full-episode TV content available to Canadians, the Canadian ratio of 8-1 clips to full-episode viewing is much higher than it is in the US. By 2012, we forecast the ratio will decline to 3-1.

Sales of online movie & TV show downloads in Canada are almost non- existent. Given the economics (and take-rates) described in the US commentary above, we do not expect much in this space.

Unlike the US, the Canadian Movie/TV Rental market has not seen much channel disruption. We forecast Stores will have 97%, Mail and Kiosk combined 2.5% and Online .5% of the market in 2008. The Canadian kiosk rental market has recently seen the entrance of the second and third largest US kiosk players, TNR and DVDPlay.

The Canadian Online movie rental market is at the embryonic stage, with just Xbox starting to rent movies. Bell Video Store is also planning to rent movies. Given Apple's recent foray into the US online movie rental market, we expect that Apple will enter the Canadian market within the next 18 months.

A key competitor to Store Rental is VOD, which unlike Store rental continues to see strong per annum revenue growth.