Entertainment Retailers Association

Entertainment Retailers Association UK Market Briefing 2014 October 2014 1

CONTENTS Entertainment Market Overview Retail Landscape Video in Detail Games in Detail ERA Tracking Study Winners / Losers 2014-15 2

Total UK Entertainment Retail Market 2011-2014 3

ERA Entertainment Retail Monitor: 2011-2014 m 2011 2012 2013 Var % 2014 ERA ESTIMATE Video 2,005.8m 1,970.7m 2,061.4m +4.6% 2,056.7m -0.2% Games 2,174.0m 2,011.0m 2,286.0m +13.7% 2,576.0m +12.7% Music 1,061.5m 1,048.4m 1,043.0m -0.5% 1,001.7m -4.0% Total 5,241.3m 5,030.1m 5,390.4m 7.2% 5,634.4m +4.5% Return to growth in 2013, up 7% driven by digital video & digital games 2014 set to grow by ca 5% driven by gains in digital games with digital video offsetting physical video and music declines Var % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Music, 1,061.5 Video, 2,005.8 Games, 2,174.0 Music, 1,048.4 Video, 1,970.7 Games, 2,011.0 MUSIC VIDEO GAMES Music, 1,043.0 Video, 2,061.4 Games, 2,286.0 ERA ESTIMATE Music, 1,001.7 Video, 2,056.7 Games, 2,576.0 0% 2011 2012 2013 2014 Sources: Music - OCC. Inc. BPI streaming consumer spend estimates / Video - Physical OCC BVA, Digital estimates IHS / Videogames Physical GfK Digital estimates IHS 4

Physical versus Digital Formats 2011-2014 100% 90% 80% 70% 5,241.3m 5,030.1m 5,390.4m DIGITAL ENTERTAINMENT FORMATS 5,634.4m (e) 1,382.7 26.4% 1,854.9 36.9% 2,394.8 44.4% 2,814.8 49.9% 60% 50% 40% 30% 20% 3,858.6 73.6% 3,175.2 63.1% 2,995.6 55.6% ERA ESTIMATE 2,819.6 50.1% 10% 0% PHYSICAL ENTERTAINMENT FORMATS 2011 2012 2013 2014 Physical format revenues down 22.4%between 2011 & 2013 and are predicted to fall by 6%in 2014 Digital format revenues up 68.3%over the same period and are predicted to climb 17%in 2014 Digital formats up from 26% of the total market in 2011 to a predicted 50%in 2014 Sources: Music - OCC. Inc. BPI streaming consumer spend estimates / Video - Physical OCC BVA, Digital estimates IHS / Videogames Physical GfK Digital estimates IHS 5

Physical versus Digital Formats 2011-2014 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 5,241.3m 5,030.1m 5,390.4m 372.6 Digital Music 460.8 500.4 753.0 257.1 688.9 1,421.0 966.0 428.1 587.6 1,045.0 1,748.7 Physical Video 1,542.6 M Digital Games Digital Video Physical Music Physical Games 1,271.0 623.4 542.6 1,015.0 1,438.0 0% 2011 2012 2013 Physical Video Physical Games Physical Music Digital Video Digital Games Digital Music Consumer spend on digital video has more than doubled over the last three years to 2013 and set to grow even faster in 2014 Spend on digital and mobile games likely to surpass 1.5 billionin 2014, over double the spend in 2011 and is set to become the biggest entertainment retail segment by value in 2014 Sources: Music - OCC. Inc. BPI streaming consumer spend estimates / Video - Physical OCC BVA, Digital estimates IHS / Videogames Physical GfK Digital estimates IHS 6

The Shift from Ownership to Access: 2012-2013 OWNERSHIP 2012 ( m) 2013 ( m) Var % Video 1,641.9 1,568.2-4.4% Games 1,444.0 1,445.9 +0.1% Music 971.3 939.9-3.2% ACCESS 2012 ( m) 2013 ( m) Var % Video 328.8 493.2 +50.0% Games 567.0 840.1 +48.2% Music 77.1 103.1 +33.7% OWNERSHIP TOTAL ( m) 4,057.2 3,954.0-2.5% ACCESS TOTAL ( m) 972.9 1,436.4 +47.6% Access Revenues versus Ownership Revenues UK Entertainment 2013 Ownership Revenues 73% Access Revenues 27% Declines in consumer-spend on buy-to-own formats like CDs, DVDs & digital downloads Significant growth in access models like subscription services or micro payments 2014/15 will see a further shift from acquisition to access Ownership still significant for several years to come Sources: Music - OCC. Inc. BPI streaming consumer spend estimates / Video - Physical OCC BVA, Digital estimates IHS / Videogames Physical GfK Digital estimates IHS 7

Content Access versus Content Ownership 2014 ERA Estimate OWNERSHIP 2014 ( m) Var % Video 1,436.0-8.4% Games 1,565.5 +8.3% Music 831.7-11.5% OWNERSHIP TOTAL ( m) 3,833.2-3.1% ACCESS 2014 H1 ( m) Var % Video 620.7 +25.9% Games 1,010.5 +20.3% Music 170.0 +64.9% ACCESS TOTAL ( m) 1,801.2 +25.4% Access Revenues versus Ownership Revenues UK Entertainment 2014 ERA ESTIMATE Ownership Revenues 68% Access Revenues 32% Music streaming subscription spend set to grow by over 60% in 2014 on back of new services. Subscriptions video services like Amazon Prime Instant and Netflix continue to build customer base Sources: Music - OCC. Inc. BPI streaming consumer spend estimates / Video - Physical OCC BVA, Digital estimates IHS / Videogames Physical GfK Digital estimates IHS 8

Video and Games Performance By Retail Channel 9

Video- Value Share by Retail Channel: 2014 First Half Retail Channel 2013 % 2014 H1 % Var Points OTC 17.1 13.1-4.0 Supermarkets 32.4 30.2-2.1 Home Delivery 20.3 17.0-3.3 Digital 30.2 39.6 +9.4 Total Market 100.0 100.0 - Video - Consumer Spend by Retail Channel Digital, 39.6% Home Delivery, 17.0% OTC, 13.1% Supermarkets, 30.2% All traditional physical retail channels are losing share to a fast growing digital sector Even the Home Delivery sector is feeling the effects of the consumer s move to digital Digital approaching 40% of the market Supermarkets still dominant in physical particularly new release OTC Supermarkets Home Delivery Digital Sources: Video -Physical OCC BVA, Digital estimates IHS 10

Video Principal Retailers Selling Video VIDEO RetailChannel 2013 2014 Var Specialist Chains 469 447-22 Multiples 2,806 2,803-3 Supermarkets 5,337 6,418 +1,081 Independents 191 116-75 Digital 30 38 +8 TOTAL 8,833 9,822 +989 Number of shops retailing physical video has grown massively year-on-year to just under 10,000outlets in 2014 Growth is driven by hundreds more small format supermarkets stocking video. Also growth in non traditional outlets (BHS Matalan and Primark etc) who now account for ca 10% of the physical market Sources: Millward Brown (physical stores) / The Content Map (Digital stores) 11

Video Average Selling Prices by Retail Channel DVD ASPs Retail Channel 2012 2013 2014(H1) VAR Specialists, generalists and independents 6.99 6.72 6.76 + 0.04 Supermarkets 6.77 7.05 6.78-0.27 Home delivery 7.35 6.80 6.94 + 0.14 Total Market 6.83 7.03 6.81-0.22 Blu-ray ASPs Retail Channel 2012 2013 2014(H1) VAR Specialists, generalists and independents 11.93 10.42 10.67 + 0.25 Supermarkets 13.58 13.94 13.08-0.86 Home delivery 11.26 12.07 11.27-0.80 Total Market 12.26 12.29 11.86-0.43 Supermarkets dominate the UK DVD market with volume share running at around 50%. In an extremely competitive non-food trading environment, DVD is not immune to downward price pressures currently prevalent in this channel. Supermarkets the only retail to drop DVD ASPs this year. High street specialists like HMV trade very well in Blu-ray and ensure they remain price competitive to maintain their high share of the market. Sources: Millward Brown / Official Charts 12

Games - Value Share by Retail Channel: 2014 First Half GAMES RetailChannel 2013 % 2014 H1 % Var Points OTC 18.3 18.8 +0.5 Supermarkets 13.1 11.1-2.0 Home Delivery 13.0 11.9-1.1 Digital 55.6 58.2 2.6 Total Market 100.0 100.0 - Digital, 58.2% Games - Consumer Spend by Retail Channel OTC, 18.8% Supermarkets, 11.1% Home Delivery, 11.9% Game the major specialist performing well since administration boosted by new consoles Games retail became a majority digital business in the UK in 2013 and share is now pushing 60% in 2014 OTC Supermarkets Home Delivery Digital Sources: Video -Physical GfKCharttrack, Digital estimates IHS 13

Games Principal Retailers Selling Games GAMES RetailChannel 2013 2014 Var Music/Video Specialists 133 118-15 Game & Software Specialists 605 393-212 Electrical/Hardware Chains 631 995 +364 General Multiples 1,312 1,395 +83 Supermarkets 2,609 3,898 +1,289 Others (estimate) 300 300 0 Digital 34 35 0 TOTAL 5,624 7,134 +1,510 Supermarket sector and other non-specialist outlets increased the physical games footprint dramatically in 2014 Electrical and hardware chains and general multiples like Maplin and Staples have also added to the games retail footprint this year Specialist stores contracted following reduction on HMV and Game s footprints Sources: GfK(physical stores) / The Content Map (Digital stores) 14

Games Average Selling Prices by Retail Channel Entertainment Software ASPs GAMES Retail Channel 2012 2013 2014(H1) VAR Specialists, generalists and independents 27.82 31.04 31.43 + 0.39 Supermarkets 25.50 28.53 25.21-3.32 Home delivery 25.52 28.26 27.85-0.41 Total Market 26.45 29.43 28.52-0.91 Difficult to judge ASP direction of traffic until the major franchises release their AAA titles in time for Christmas Supermarkets facing pressure from large European discounters have been using competitively priced entertainment product to woo consumers back into their shops leading to a fall in ASP of ca 3 this year. Sources: GfK Chart Track 15

Video Performance in Detail 16

Digital Video: Total Video Spend in UK: 2011 2013 (estimate) 100% 90% 80% Total Video: 2,005.8m Total Video: 1,970.7m Total Video: 2,061.4m 257.1m 12.8% Digital 428.1m 21.7% 623.4m 30.2% 70% 60% 50% 40% 30% Physical 1,748.7m 87.2% 1,542.6m 78.3% 1,438.0m 69.8% 20% 10% 0% 2011 2012 2013 2013 % Total Video Spend Digital (f/c) = 30.2% Predicted to hit near 40% 2014 Sources: IHS / Official Charts / ERA Estimates 17

Video Retail: DVD & Blu-ray 2011-2014 (H1) Total Physical Video: 1,748.7m Total Physical Video: 1,542.6m Total Physical Video: 1,438.0m Total Physical Video: 549.2m 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 222.8m 12.7% 1,525.9m 87.3% 228.9m 14.8% 1,313.7m 85.2% 251.8m 17.5% 1,186.2m 82.5% 102.5m 18.7% 446.8m 81.3% 2011 2012 2013 2014 H1 Blu-ray DVD DVD year-on-year Growth % Blu-ray year-on-year Growth % Total video year-on-year Growth % -13.9% -9.7% -13.3% (H1) +2.7% +10.0% -12.5% (H1) -11.8% -6.8% -13.1% (H1) After years of steady sales growth, Blu-ray fortunes stalled and then reversed in 2014, down -12.5% YTD. Blu-ray share grab of total video consumer-spend has also slowed in 2014, standing at 18.7% YTD. Sources: Millward Brown / Official Charts 18

VHS to Blu-ray -format volume market share evolution, 1998-2014 100% 90% VHS DVD BLU RAY 80% 70% 60% It took DVD just over 4 years from 1998 s launch to achieve 50% of total video market volume sales. While it has taken Blu-ray a little over 7 years to achieve just 12% of the total video marketvolume in the UK % of Total Video Volume 50% 40% 30% 20% Blu-ray (inc HD) DVD 10% VHS 0% 1998-Q2 1998-Q4 1999-Q2 1999-Q4 2000-Q2 2000-Q4 2001-Q2 2001-Q4 2002-Q2 2002-Q4 2003-Q2 2003-Q4 2004-Q2 2004-Q4 2005-Q2 2005-Q4 2006-Q2 2006-Q4 2007-Q2 2007-Q4 2008-Q2 2008-Q4 2009-Q2 2009-Q4 2010-Q2 2010-Q4 2011-Q2 2011-Q4 2012-Q2 2012-Q4 2013-Q2 2013-Q4 2014-Q2 The incentives for the consumer to switch from VHS to DVD in the late 90 s were a numerous and compelling picture quality durability etc Blu-ray has not had the same transformative effect on sales. It appears that the technical enhancements over DVD have not wholly convinced the consumer that the premium is worth paying. Couple this with backward compatibility of the Blu-ray player and significantly higher ASPs and the format has yet to compel the consumer to adopt quickly. Sources: Millward Brown / Official Charts 19

Video Retail: Blu-ray Pricing - Premium Over DVD ASP % Premium over DVD +95% +97% +82% +80% +75% BLU-RAY ASP 16.84 15.38 14.51 12.26 12.29 DVD ASP 8.62 7.80 7.96 6.83 7.03 YEAR 2009 2010 2011 2012 2013 The UK pays an average premium of 75%for Bluray. By way of contrast in Germany the Blu-ray premium over DVD is averaging 30% and HD sales are level in 2014 and represent close to 30%of total spend on video In contrast the high price in UK has seen only 17.5%of total video consumer spend in 2013 represented by Blu-ray and sales down - 12.5% in 2014. Sources: Millward Brown / Official Charts / IVF 20

Video Retail: New Release versus Catalogue Titles 2011-2014 (H1) Total Video: 1,748.7m Total Video: 1,542.6m Total Video: 1,438.0m Total Video: 549.2m 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1,002.7m 57.3% 746.0m 42.7% 890.0m 57.7% 652.6m 42.3% 795.7m 55.3% 642.3m 44.7% 298.0m 54.3% 251.2m 45.7% 2011 2012 2013 2014 H1 Catalogue New Release New Release year-on-year Growth % Catalogue year-on-year Growth % Total video year-on-year Growth % -12.5% -1.6% -9.3% (H1) -11.2% -10.6% -16.1% (H1) -11.8% -6.8% -13.1% (H1) Subscription services likely to impact catalogue to a greater degree Physical catalogue sales declined by -16.1% during the first half of 2014, far more dramatically than new release which only posted a -9.3% decline Sources: Millward Brown / Official Charts / IHS 21

Games Performance in Detail 22

Games Retail: Total Software Spend (inc. PC) in UK: 2011 2013 Total Games: 2,174.0m Total Games: 2,011.0m Total Games: 2,286.0m 100% 90% 80% 70% 753.0m 34.6% Digital 966.0m 48.0% 1,271.0m 55.6% 60% 50% 40% 30% 20% 1,421.0m 65.4% Physical 1,045.0m 52.0% 1,015.0m 44.4% 10% 0% 2011 2012 2013 2013 Total Games Spend Digital = 55.6% Set to hit 60% in 2014 Sources: Chart Track / ERA estimates / Screen Digest Estimates 23

Games Retail: Software Revenues by Static Platform 2011-2014 (H1) m 2011 2012 2013 2014 (H1) Sony PlayStation 3 (PS3) 394m 298m 295m 44m Sony PlayStation 4 (PS4) - - 65m 64m Microsoft Xbox 360 568m 468m 405m 67m Microsoft Xbox One - - 53m 52m Digital Nintendo Wii 198m 81m 31m 4m Nintendo Wii U - 9m 22m 10m ERA ESTIMATE Total static console 1,160m 856m 871m 242m Games Revenue Share by Static Platform: 2014 H1 Xbox One, 21.6% Wii U, 4.3% Xbox 360 27.8% Physical Marginal overall winner is Microsoft with combined sales across its 2 platforms of 119m vs the Playstation 108m PS4 outperforming Xbox One in new console software sales due to its higher installed base 64m vs 52m PS4 26.3% PS3, 18.3% But in the legacy market 360 sales lead PS3 sales by a good margin 67m vs 44m Nintendo Wii, 1.7% Sources: Chart Track GfK 24

Games Retail: Software Revenues by Handheld Platform 2011-2014 (H1) m 2011 2012 2013 2014 (H1) Sony PSP 12m 3m 1m 0.1m Sony PS VITA - 22m 11m 3m Nintendo DS 123m 52m 18m 3m Nintendo 3DS 51m 54m 71m 15m Digital Total handheld console 186m 131m 101m 21m ERA ESTIMATE Games Revenue Share by Handheld Platform: 2014 H1 Nintendo still dominates the handheld market claiming over 85% of consumer spend in 2014 Sony PS VITA, 14.3% Physical Sony s PS VITA continues to disappoint Nintendo DS, 14.3% The handheld segment is struggling to resist the challenge of mobile and tablet digital gaming. Nintendo 3DS, 71.4% Sources: Chart Track GfK 25

Games Retail: Next-Gen Match Up -PS4 versus Xbox One (Nov 2013 Jun 2014) Consoles Sold Since Launch: 798k Retail Value of Console Sales Since Launch: 274.9m No. of Software Titles (as of H1 2014): 36 Software Units Sold Since Launch: 2.6m Retail Value of Software Sales Since Launch: 121.8m UK Tie Ratio Since Launch:3.3 Consoles Sold Since Launch: 554k Retail Value of Console Sales Since Launch: 214.6m No. of Software Titles (as of H1 2014): 35 Software Units Sold Since Launch: 2.2m Retail Value of Software Sales Since Launch: 99.8m UK Tie Ratio Since Launch: 3.9 26

ERA Consumer Tracking Study Digital Video 27

ERA Tracking Study Digital Video Service Usage: Wave 4 100% 90% 80% 70% 25.8% 39.0% 48.7% 62.7% Don't Use Use Occasionally / Regularly 60% 77.0% 82.9% 87.2% 88.2% 88.6% 89.0% 90.5% 90.7% 91.4% 92.3% 50% 95.9% 96.3% 96.3% 96.5% 96.6% 96.9% 99.0% 99.1% 99.1% 99.3% 99.3% 99.6% 99.7% 40% 30% 20% 74.2% 61.0% 51.3% 37.3% 10% 23.0% 17.1% 12.8% 11.8% 11.4% 11.0% 9.5% 9.3% 8.6% 7.7% 0% 4.1% 3.7% 3.7% 3.5% 3.4% 3.1% 1.0% 0.9% 0.9% 0.7% 0.7% 0.4% 0.3% The majority of respondents polled use catch-up services provided by the BBC (74%), ITV (61%) and Channel 4 (51.3%) 23%of the panel use thedigital retail and rental video service from itunes, while Virgin sand Sky svod services are used by approximately 12%of respondents Of the subscription services, Netflix (11%) enjoys a slightly higher usage level than rival Amazon Prime Instant (9%) while Sony s Entertainment Network (3.7%) is used by marginally more respondents than Microsoft s Xbox Video (3.5%) Base: W1 2,068 / W2-1,755 / W3 1,490 / W4 1,342 28

ERA Tracking Study -To what degree is a DIGITAL VIDEO STREAMING SUBSCRIPTION spend substitutional? We'd like to know how your VIDEO streaming subscription has affected your spending on DVDs and Blu-rays DVDs and Blu-rays TOTAL Male Female under 25 25-34 35-44 45-54 55+ Spending much less 30.7% 25.0% 40.4% 45.5% 33.3% 33.3% 25.0% 25.0% Spending a little less Spending the same Spending a little more Spending much more 16.4% 20.5% 9.6% 9.1% 18.5% 7.1% 16.7% 33.3% 36.4% 39.8% 30.8% 36.4% 33.3% 47.6% 36.1% 20.8% 0.7% 1.1% 0.0% 0.0% 0.0% 0.0% 2.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% I didn't spend anything on these formats previously 15.7% 13.6% 19.2% 9.1% 14.8% 11.9% 19.4% 20.8% Clearly acquiring a video streaming subscription negatively affects spending on physical video formats. Nearly 50% of respondents say that they now spend lesson DVDs or Blu-raysthan they did before their subscription started, with 30.7% spending much less 36.4% of the panel say they are spending the same, rising to 47.6%in the 35-44age bracket Less than 1%of the panel say they are spending more since taking out their subscription with no one claiming they are spending much more. It is equally clear, however, that subscription streaming is also bringing brand new spend to the video market with 15.7%of the panel stating that they spent nothing on DVDs or Blu-raysbefore they took out their subscription. Whether or not this new, regular spend is actually delivering net incremental revenue for the industry is now the key question Base: W1 2,068 / W2-1,755 / W3 1,490 / W4 1,342 29

ERA Tracking Study Digital Video Subscription Service Usage by Device: Wave 4 DIGITAL VIDEO SUBSCRIPTION SERVICES Services included: Amazon Prime Instant Video, Netflix, NowTV Total Sample Total Respondents 1,342 Subscribe / Use regularly 6.3% Computer Set-top box (e.g. Sky, Freeview) Game console Blu-ray/DVD player Smartphone Digital Video Subscription Service Usage by Device (at least monthly) Tablet TV 10 + Proposed or existing cloud 20.2% services 19.9% 24.4% 32.2% 32.2% 30.6% 38.4% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% The computer / laptop is the preferred device to access digital video streaming services, used by 38.4% of the panel All three services are available on mobile devices, although Amazon Prime Instant is not yet compatible with Android operating systems. Tablets are used by 32.2% of respondents, while the smartphoneis used by just under 20% In terms of access via devices set up around the TV, the set-top boxis most popular, used by 32.2% of respondents. Smart TV apps are used by 30.6% while just over20% gain access via Blu ray / DVD players Base: W1 2,068 / W2-1,755 / W3 1,490 / W4 1,342 30

ERA Tracking Study Digital Video Retail and Rental Services Usage by Device: Wave 4 ONLINE DIGITAL VIDEO RETAIL AND RENTAL SERVICES Services included: itunes, Blinkbox, Xbox, PSN, Wuaki.TV, Sainsbury s, Google Play Total Sample Total Respondents 1,342 Use regularly 8.4% Digital Video Retail & Rental Service Usage by Device (at least monthly) Computer Tablet Smartphone Set-top box (e.g. Sky, Freeview) Blu-ray/DVD player Game console TV 28.0% 24.4% 21.5% 19.9% 33.9% 41.7% 53.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% The majority of respondents (54%) use their computer / laptop to access digital video DTO and rental services. Mobile devices are much more important in this sector than in digital subscription, with 42%using their tabletand 34%using their smartphone to access the various services Access via games console is just over 21%, a figure driven by Xbox Video and PlayStation Network users Base: W1 2,068 / W2-1,755 / W3 1,490 / W4 1,342 31

Winners and Losers 2014 / 15 32

Winners and Losers: Market Trends - 2014 / 2015 PS4 Xbox One Nintendo Wii U Ultraviolet DVD / Blu-ray Winners With 121.8m worth of software sales 2014 MAT, the PS4 has won the early sales skirmishes with the Xbox One. Solid sales to continue over the next two years. Interms of console sales, the Xbox One is being outsold by the PS4. Enjoys a better software tie rate though and has room to manoeuvre on price. Solid prospects After a slow startthe Wii U has released some compellingtitles,become more competitive on price and is showing some real signs of growth from a low base. Should maintainpositive momentum through 2014 / 15 Yet to launch properly. Despite no real marketing effort, 22 million UV units were sold in 2013 and this is set to increase in 2014 Subscription streaming -music Couldenjoy a tipping point this year as it gets bundled with more ISPs and mobile services. Market worth 100m in 2013 and set to double by 2015 Vinyl Digital Subscription -video Digital Retail/ Rental -video Digital and Online Games Mobile / Tablet Games Enjoyed 100% growth year-on-year in 2013. Powered by Record Store Day it is still a very niche format but the market likely to near enough double again this year. Services like Amazon Prime and Netflix propelled the digital video subscription to 120% growth in 2013. Market could be worth 300m in 2015 Service providers like itunes and Blinkbox will continue to enjoy healthy growth in consumer-spend in this sector, particularly if high-profile, 6-month digital-exclusives continue to be handed out by the studios Despite a slow down in growth in casual / social gaming and MOGs, increased spend on PC DTO games & direct-to-console will continue boost the sector Huge segment of the digital games revolution shows no signs of slowing revenues could exceed 0.5bn in 2014 Sources: Chart Track / *ERA estimate / **Screen Digest Estimate 33

Winners and Losers: Market Trends - 2014 / 2015 CD Digital Albums Digital Singles DVD Losers Years of decline unlikelyto abate. However, the CD will remain the preferred format for the bought music album for a long while. Sales double that of bundles in 2013 with dominance likely to persist over the next couple of years. No monthly year-on-year increase since August 2013 confirming that the digital album has joined the digital track in a long term decline spiral. After7 months of year-on-year declines last year, finally posted an annual reverse for the first time ever in 2013. Under pressure from shift to streaming Long-term declinewill continue. A very mature market struggling to sell catalogue upon which it has relied on over the years. The traditional physical format consumer switching to Blu-ray (slowly) PS3 Sales will naturally fall away as more consumers switch to the PS4 through 2014. Xbox 360 All Handheld Consoles Sales will drift asmore switch to Xbox One although sales likely to remain more buoyant than PS3 Through 2013,Nintendo s 3DS handheld device appeared to be standing up quite wellin the face of the bloodbath that is the rest of the traditional handheld games market. But the inexorable rise of mobile / tablet gaming seems to be damaging this market stalwart too. A bleak outlook for the sector. As a whole Sources: Chart Track / *ERA estimate / **Screen Digest Estimate 34

---END --- Prepared by Luke Butler luke@eraltd.org 35

Appendix 36

Digital Video - Glossary of Terms VIDEO Digital Retail (EST / DTO): A method of selling digital video content that gives the customer ownership of the files they have downloaded. The digitally distributed equivalent of conventional retail channels. Digital retail is also know as Electronic Sell Thru (EST) or Download to Own (DTO) Digital Rental: A method of renting digital video content whereby the customer commonly chooses content on an a la carte basis and pays to watchit for a limited time period. Also known as Pay per View (PPV) Digital Subscription (exc. Sport): The customer pays a monthly subscription fee to gain unlimited access to a library of digital movie and TV content. The subscription service providers like LoveFilm Instant and Netflix can be accessed online via PC / Mac, via games consoles like the Xbox 360, or through apps on Smart TVs. Sport content is excluded from revenue estimates. Satellite / Cable / IPTV On-Demand Movies Blockbuster and library on-demand movies that command a fee to access for a limited time period. Content is made available to rent via satellite, IPTV or cable services and payment is taken in addition to monthly TV service provider subscriptions. While movies can often be watched on devices other than the platform s connected PVRs and TV set-top boxes like Sky s Sky Go service that allows subscribers to rent on-demand movies via their phones, tablets and PC / Macs transactions are billed in addition to monthly subscription charges and are available to Sky subscribers only. Standalone on-demand services like Sky s NowTV and Virgin s Virgin Movies are included in the Digital Rental channel. 37

Digital Entertainment Glossary of Terms: Games Online Console Games Downloads / Subscriptions / Downloadable Content (DLC): GAMES Online Console: Includes spending on full-game download transactions, paid downloadable games content transactions, in-game microtransactions and online console service subscriptions. PC MOGs: PC MOGs: Refers to PC multiplayer online games. Spending derived from monthly subscriptions and in-game micro-transactions. PC Casual / PC Social: PC casual games refer to games played on, or downloaded from, casual game portals and websites. Spending is derived from full-game download transactions, subscriptions and pay per play games. PC social network games refer to games available on social networks likefacebook and Google Plus and the market represents spend on microtransactions. PC DTO: Spend on digital download versions of retail or independent PC games On-Demand: Games offered via video-streamed and progressive download technology directly to your PC or internet-connected device via dedicated app. Spend is derived from monthly subscriptions, rentals or game purchases. Mobile / Tablet: Mobile and Tablet Games and Games Apps: Refers to games played on mobile phones or tablets. Spend is derived from full-game purchases, subscriptions and in-game purchases. 38