Innovation in Digital Entertainment at Telefónica R&D

Gerard Mulà25th of February 2010

© 2008 Telefónica Investigación y Desarrollo, S.A. Unipersonal

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01 Internet and Multimedia Line at Telefónica R&D and its activities in Digital Entertainment

02 Future, trends and opportunities for Telefónica in Digital Entertainment

Index

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Strategy is changing…

Core business

Stay connected

New business development

While connected

Voice accessBroadband

connectivity

Digital services

and contents

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Core Business New Business Development

Stay Connected While Connected

Technology strategy

Planning, control and resources

Internet & Multimedia

End-User Services

Indiv

idua

lHom

eEn

terp

riseIT

(BSS/OSS)Network and

Platforms

Executive President

(CEO)

In 2007 Telefonica I+D was organized in such a way to be better aligned with global innovation strategy

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Barcelona center, created in 2002 and reinforced in 2006, is leading the internet and multimedia space within Telefónica since 2007

Activity in R&D (K€) Total Headcount

And a global approach with regional teams

Spain Europe Latam

Highlights in Internet y Multimedia Line

Since 2006, Telefonica R&D has significantly increased its activity on Internet and Multimedia around its Barcelona center

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Applied research

Exploratory development

Productdevelopment

Internet Multimedia Data mining & User modelling

Mobile Augmented

Reality

Social Networks & Communities

P2P Content Distribution

3D Video

Customer Entry Point

Global Products

Social search

Mobile multimedia

annotation and search

Mobile Social

Internet & Multimedia activity areas in Telefonica R&D

20%3-5 year

s

30%1-3 year

s

50%< 1 year

Activity rate

Time line

Activity rate

Time line

Activity rate

Time line

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Main initiatives during 2009 in Digital Entertainment

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.

Current CIP

Pinchos

TV services solution “PINCHOS” launched as a commercial product, consolidated in Brazil

Multimedia content services

Video and 3D experimental projects

TV services and platforms

New TV service s and platforms between the full interactivity of IPTV and the simplicity of traditional pay-TV, as well as the virtualization through Telefónica network

Videoconference, 3D stereoscopic

Providing User Generated content platforms and services, and improving Mobile multimedia services

Live Music

DRM

Videosurfing 3D

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A latest example of our activity in Digital Entertainment

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.

Current CIP

EL CONSORCIO ESPAÑOL 3DLIVE REALIZA LA PRIMERA TRANSMISIÓN DE UN EVENTO DEPORTIVO EN VIVO EN 3D EN ESPAÑA

Para ello, el consorcio colabora con la Liga Nacional de Fútbol Sala, retransmitiendo en directo del partido entre el Inter Movistar y MRA Navarra que tendrá lugar el próximo día 27 de Febrero a las 18.00

http://3dlive.tid.es

PRESS RELEASE

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01 Internet and Multimedia Line at Telefónica R&D and its activities in Digital Entertainment

02 Trends and opportunities for Telefónica in Digital Entertainment

Index

TELEFÓNICA I+D

© 2008 Telefónica Investigación y Desarrollo, S.A. Unipersonal10

We are aware that the new trends in the digital world bring new opportunities

Digital contents explosion and greater bandwidth availability

Mobile data usage taking off

IP technology revolutionizes traditional TV

Convergent services across the three screens (TV, PC and mobile)

The Web is evolving in a very fast way (Web 2.0, virtual worlds, semantic web, etc.)

Co-creation with users

Importance of user experience vs technology

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1,91,8

1,71,71,6

1,5

0

0,5

1

1,5

2

2,5

2007 2008 2009 2010 2011 2012

Entertainment & Media is a huge market whose revenues grow faster than Telecom Services

Telecom revenue growth vs Entertainment & Media growth

US Trillion

CAGR 4,4%

1,34 1,37 1,38 1,40 1,41 1,41

0,260,34

0,440,54

0,660,79

1,61,7

1,81,9

2,12,2

0

0,5

1

1,5

2

2,5

2007 2008 2009 2010 2011 2012

Telecom Services Entertainment & Media

Source: Garner, Global Telecommunications Market Take, June 2008, include only Telecom Service Segment not equipment

Source: PWC, Global Entertainment and Media Outlook 2008-2012, include traditional and digital revenue sources

CAGR 6,6%

US TrillionTraditional Entertainment & Media

Digital Entertainment & Media

CAGR 25%

CAGR 1%

Source: (1) Source: NPD Group Survey, April-09. (2) IDC.

2,9%2,8%3,3%3,4%3,5%3,5% 3,1%3,0%3,5%3,9%4,0%4,1%% of Disposable Income

24%Innovation: new

business / revenue models, new P&S

60%Growing

percentage of discretionary spending &

growth emerging markets (BRIC)

16%other

Factors of growth

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But TEF is not the only one in a overcrowded space with well established players along the value chain

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There are some exceptions, mainly not so mature segments, like mobile games or ebooks, where there are still some places (developers , digital distribution) not overcrowded

There are some exceptions, mainly not so mature segments, like mobile games or ebooks, where there are still some places (developers , digital distribution) not overcrowded

NOT EXHAUSTIVE

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In terms of relative success, hype and innovation there are some examples to highlight

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Video and TV: HULU

Music: SPOTIFY

Games: ONLIVE; Microsoft

eBooks: Amazon’s KINDLE

•website that offers commercial-supported streaming video of TV shows and movies from NBC, Fox, ABC and many other networks and studios. •Hulu videos are currently offered

only to users in the United States. •Hulu UK open in September 09•Has also a desktop application

•Proprietary peer-to-peer[1] music streaming service that allows streaming listening to specific tracks or albums •Music can be browsed by artists, albums or created playlists as well as by direct searches. •Developed since 2006, Stockholm, Sweden.•More than one million users.[

The service is a gaming equivalent of cloud computing: the game is synchronized, rendered, and stored on a remote server and delivered online. It is the code name for a "controller-free

gaming and entertainment experience" by Microsoft that enables users to control the Xbox 360 through a natural user interface using gestures, spoken commands, etc

• Software and hardware platform developed by Amazon.com subsidiary Lab126•There are three hardware models ("Kindle", "Kindle 2," and "Kindle DX“) and an iPhone application• More than 300,000 books available for download, propietary format (AZW)•It is not a purchase but a licensing of each ebook , they have an expiration date.

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