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w/e August 16, 2009 SCRI International, Inc © 1984 - 2009

INDEX

TECHNOLOGY NEWS

HDTVs in over half of US homes

A Cable & Telecommunications Association for Marketing (CTAM) report has shown strong growth over the past year in HDTV ownership. In 2009, 53 per cent of total US households report owning a high definition television, an 18 per cent increase in ownership over 2008, when 35 per cent of households reported owning an HDTV (23 per cent in 2007). Among HDTV set owners, 69 per cent now subscribe to high definition service, compared to 56 per cent a year ago.

Ownership of large screen televisions –32 inches and larger – has also seen solid growth. In 2009, 59 per cent of households owned one, up from 52 per cent in 2008.

Connected TV revenues top $1bn in Q2

While not the majority of unit or dollar sales in Q2 2009, the growth of TVs with built-in Internet capabilities enabling content such as YouTube, Netflix, TiVo, Facebook etc, or ‘Connected TVs’ was up significantly in both units and value compared to the prior quarter.

Quixel Research’s newly launched USA Large Area Display Report revealed that second quarter Connected TV value, including both LCD and Plasma TV models with Internet capabilities rose 40 per cent from Q1 2009 to Q2 2009. Connected TV unit sales were up 70 per cent for the same time period. The total value of the Connected TV market was $1.08 billion in Q2 2009 compared to $776 million in Q1 2009. Volume almost doubled for Internet capable TVs, with sales reaching 620K compared to 365K units in Q1 2009.

"The timing is right for consumer adoption of Connected TVs," said Tamaryn Pratt, Quixel Research’s principal. "The majority of people already have high speed broadband in their homes, and with the increased availability of premium content via the internet, such as movies, UGC, etc., manufacturers are capitalising on consumers’ desire to watch ‘programming’ on a much larger screen than their computer monitors."

Dramatic increase in TV/Movie Streaming

Americans with Internet access are streaming more TV shows and movies than ever before, according to findings from Ipsos MediaCT’s MOTION study. The report suggests that in the past 30 days, 26 per cent of online Americans have streamed a full-length TV show and 14 per cent have streamed a full-length movie. This is more than two times the levels measured in September 2008. Not surprisingly, young adults 18 to 24 years of age have been the most ardent supporters of this medium. What is surprising is just how supportive they are – in the past 30 days, 30 per cent have streamed a full-length movie and 51 per cent have streamed a full-length TV show, which represent dramatic increases from last year.

Ipsos says the rapid rise in longer form video streaming can be attributed to the swift growth of many digital video websites since last year. Hulu, in particular, has experienced heightened exposure and visitation, and has helped pioneer the transition to ad-supported free streaming of TV shows and movies. Now that the ad-supported content model is taking off, content providers will be challenged to monetise their content through alternative fee-based methods given the acceptance of the ad-supported or ‘free’ model. In addition, content providers will need to understand the appropriate level of advertising that streamers will be willing to tolerate for their content. "The digital video revolution is no longer centred on short clips via YouTube; it is becoming an important distribution channel where any type of full-length video can be instantly accessed for immediate consumption without a fee," explained Brian Pickens, Senior Research Manager at Ipsos MediaCT.

Furthermore, even among digital video users, 64 per cent would rather watch hour-long dramas and half-hour comedies live on their TV than rent or purchase them, or watch them on their PC or portable device. Clearly, the TV is still preferred, especially considering the rapid growth of HDTV, now in 41 per cent of homes with Internet access.

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INDUSTRY NEWS

Recession sees major shifts in communications industry

Veronis Suhler Stevenson (VSS), a private equity firm dedicated to the information, education and media industries, has published its latest Communications Industry Forecast (CIF) covering the years 2003-2013.

VSS predicts that total communications spending will decline 1 per cent in 2009 to $882.6 billion, but grow 3.6 per cent per year over the next five years to over $1 trillion making communications the third fastest-growing sector of the U.S. economy over that period. Segments driven by end user spending and targeted marketing services are gaining even as traditional advertising is shrinking.

2008 and 2009 witnessed a major shift in the spending patterns in the communications industry, as advertising became the smallest of the four major sectors in 2008 - a first for advertising since VSS began tracking the industry in 1986. While this period culminated a decade-long trend away from traditional advertising vehicles and towards institutional and consumer end-user spending and marketing services, it also highlighted the emergence of institutional and consumer communications as the dominant sectors in US communications spending. VSS forecasts that the institutional sectors and various alternative media segments will drive overall communications spending for the next five years.

As expected, the current challenges facing the industry are largely the result of the current cyclical economic downturn, which is exacerbating the impact of structural and secular changes already underway. Over the five-year forecast period, 12 of the 20 major industry segments are expected to show positive growth, with the most challenged segments clustered in traditional advertising. However, the long-term secular demand for information, education and entertainment will continue, and the bright spot for advertising going forward will be in digital and other alternative and targeted advertising businesses.

Digital Video Expo Returns

NewBay Media, a leading publisher of digital content creation media, today announced new features, a new location, and new dates for its 13th annual Digital Video Expo (www.dvexpo.com), which is to be held at the Pasadena Convention Center on September 22-24, 2009. Thousands of professionals in the content creation industry are expected to gather at the show for three full days of intensive education, training, and networking events, as well as the unique opportunity to test drive the latest products and services from over 100 key industry innovators, including Panasonic, Sony, JVC and Matrox Video.

This year’s Digital Video Expo includes three new conference tracks, the integration of Broadcast Symposium West, and Apple certification, including Final Cut Pro 7 instruction from authors and master trainers Diana Weynand and Michael Wohl, plus immersion courses for everyone from beginners to advanced users. Also new this year is a special track focusing on career management and development.

"We’re excited to present programming that addresses today's incredibly competitive marketplace for our growing family of attendees,” says David Williams, Conference Chair, Digital Video Expo, and Editor, DV Magazine. "Not only will we have a great show floor featuring all the latest technology for production and post, but Digital Video Expo takes the next step by also offering insight on how to actually build your career. To quote one of our keynote speakers, veteran entertainment industry career coach Jessica Sitomer, ‘Sometimes talent isn't enough.' Well, technology alone often isn't enough either. Today's creative content professional needs to have not only talent and a firm grasp on technology, but the ability to bring those attributes to the marketplace. And Digital Video Expo is the only show that addresses all three of those elements necessary for your success.”

The changes being made by Digital Video Expo have already resonated with the content creation community, as attendee registration is up more than 40 percent to date over last year’s event.

“We’re gratified by our increased registration, as it confirms our belief that this year's Digital Video Expo programming and message is the right response to today's challenging business realities,” says Carmel King, NewBay Executive Vice President. “In addition, our move to the Pasadena Convention Center will offer our attendees a centralized, engaging, and lively destination, featuring a world-class, pedestrian-friendly entertainment district with over 500 restaurants, bars, theaters, and an array of hotel options. Pasadena also has a rich TV and film production industry history, and will make for a safe, convenient, freeway-close, and comfortable destination.”

For complete event and registration information, please visit http://www.dvexpo.com.

Digital economy to lift Europe out of crisis

The European Commission's Digital Competitiveness report shows that Europe's digital sector has made strong progress since 2005: 56 per cent of Europeans now regularly use the Internet, 80 per cent of them via a high-speed connection (compared to only one third in 2004), making Europe the world leader in broadband Internet.

The Commission suggests that Europe can advance even further as a generation of ‘digitally savvy’ young Europeans becomes a strong market driver for growth and innovation. Building on the potential of the digital economy is essential for Europe's sustainable recovery from the economic crisis, it says, confirming that it is to ask the public what future strategy the EU should adopt to make the digital economy run at full speed.

"Europe's digital economy has tremendous potential to generate huge revenues across all sectors, but to turn this advantage into sustainable growth and new jobs, governments must show leadership by adopting coordinated policies that dismantle existing barriers to new services," said Viviane Reding, EU Commissioner for Information Society and Media. "We should seize the opportunity of a new generation of Europeans who will soon be calling the shots in the European market place. These young people are intensive Internet users and are also highly demanding consumers. To release the economic potential of these 'digital natives', we must make access to digital content an easy and fair game."

The report’s findings suggest that, although the ‘digital generation’ seems reluctant to pay to download or view online content such as videos or music (33 per cent say that they are not willing to pay anything at all, which is twice the EU average), in reality twice as many of them have paid for these services compared to the rest of the population (10 per cent of young users, compared to an EU average of 5 per cent). They are also more willing to pay for offers of better service and quality.

Internet use will soar as Europe's ‘digital natives’ begin their professional lives, increasingly shaping and dominating market trends. As traditional business models stall, companies will have to offer services attractive to the next generation of users, while legislators should create the right conditions to facilitate access to new online content while also ensuring remuneration for the creators.

The public consultation is open until October 9th 2009. This is the first step towards a new European ICT strategy, which the Commission aims to present in 2010 as part of the next wave of the Lisbon Agenda.

Google to acquire On2 Technologies

On2 Technologies and Google have entered into a definitive agreement under which Google will acquire On2, a developer of video compression technology. The transaction is valued at approximately $106.5 million.

"Today video is an essential part of the web experience, and we believe high-quality video compression technology should be a part of the web platform," said Sundar Pichai, Vice President, Product Management, Google. "We are committed to innovation in video quality on the web, and we believe that On2's team and technology will help us further that goal."

The transaction, which is subject to On2 stockholder approval, regulatory clearances and other closing conditions, is expected to close in the fourth quarter of 2009.

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COMPANY NEWS

Chyron Q2 Revenue Down 42%

Chyron, a provider of Graphics as a Service for On Air, Online, Out of Home, and Mobile Applications, announced its financial results for the second quarter and first six months ended June 30, 2009.

For the second quarter ended June 30, 2009, revenues were $5.8 million, a decrease of 42% from revenues of $10.0 million in the second quarter of 2008. Operating loss for the quarter was $1.4 million as compared to operating income of $1.2 million for the second quarter of 2008. Net loss for the quarter was $1.1 million, or $0.07 per share, as compared to net income of $1.1 million, or $0.07 per share, for the second quarter of 2008. Adjusted EBITDA was a loss of $0.8 million for the second quarter as compared to a gain of $1.6 million in 2008's second quarter.

The Company defines Adjusted EBITDA as GAAP net income (loss) plus interest, income tax expense or benefit, depreciation, amortization and non-cash stock option expense. An explanation of management's use of this measure of results and a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure of net income (loss) is set forth at the end of this press release.

For the six months ended June 30, 2009, revenues were $12.1 million, a decrease of 34% from revenues of $18.3 million in the prior year’s first six month period. Operating loss for the six months was $2.5 million as compared to operating income of $1.3 million for the first six months of 2008. Net loss for the six months was $2.0 million, or $0.13 per share, basic and diluted, as compared to net income of $1.4 million, or $0.09 basic and $0.08 diluted earnings per share, for the first six months of 2008. Adjusted EBITDA for the six months was a loss of $1.2 million as compared to a gain of $2.4 million for the comparable 2008 period.

Michael Wellesley-Wesley, Chyron President and CEO, commented, "Our second quarter results were as we expected and reflect the severity of the global media recession and sharp declines in all categories of TV advertising spending.

Many of our broadcast customers have curtailed their capital equipment spending and have deferred or cancelled planned upgrade programs. We have adjusted to this new reality by reducing headcount, cutting salaries and taking other expense control measures while continuing to emphasize investment in R&D and product development. We view this period as an opportunity to build a strong foundation for future growth."

Mr. Wellesley-Wesley concluded, "Our AXIS On Demand hosted content creation services continue to generate widespread interest and are gaining real traction. I expect other major TV station groups to join Fox and Gannett as AXIS customers in 2009. Our broadcast customers know they have to reduce their costs.

Many are considering how to replace their traditional high fixed cost business model with exactly the kind of variable, low cost model that we believe AXIS represents and the stunning cost savings that AXIS can deliver. We believe that AXIS gives us first mover advantage; our goal is to build on this aggressively to emerge as a leader in 2010."

Miranda Q2 Revenue Down 9%

“Delays in customer orders combined with reduced customer demand stemming from the global downturn and tight credit markets continued to weigh on the broadcast equipment industry, including Miranda,” said Strath Goodship, Miranda’s President and Chief Executive Officer.

Second quarter revenues declined 9% from 2008 to $31.1 million. Net income was $1.3 million, or 6 cents per share on a fully diluted basis, down from $4.1 million and 16 cents respectively last year. This quarter’s earnings were impacted by a restructuring charge of approximately $0.7 million, relating to the previously announced cost containment efforts. These initiatives are now in full effect and are expected to generate annualized savings of approximately $4.0 million. Excluding restructuring, net income for the period was $1.7 million, translating into fully diluted EPS of 8 cents.

“Despite weaker end market demand, our business fundamentals remain strong and we remain a dominant player in our industry,” commented Mr. Goodship. “Furthermore the integration of NVISION is proceeding well and the broader solutions now being offered have allowed us to win a number of combined deals. We also continue to believe broadcast spending will eventually improve. Therefore, we continue to make sound investments in our future, streamlining costs to mitigate the impact of lower sales volumes, while strengthening our product line through strategic investments in R&D

Disney profits dive

The tough consumer environment took its toll on Walt Disney’s Q3 earnings, with profits down 25 per cent on falling television advertising income and declining home entertainment sales.Bob Iger, chief executive, acknowledged the difficult economic conditions but said the company, which owns the ABC television network and ESPN cable channel, had detected signs of "economic stabilisation". But he added that "the pace and strength of the recovery remain uncertain… we are managing accordingly."

Disney’s film studio business also suffered, with home entertainment sales falling against the same period the previous year. Studio operating income fell $109 million to a loss of $12 million.

Iger said Disney was continuing to examine cost-cutting measures for the studio, adding that the business model for the film industry was shifting. "The old notion that you can make money from everything is not the case anymore," he said.

He took a bullish stance on Disney’s international expansion, pointing to recent investment in the UK by ESPN. The channel has acquired the rights to some Premier League football matches over the next three years, putting it into direct competition with BSkyB.

General Cable Acquires Gepco International

General Cable Corporation, reported that it has acquired Gepco International, Inc. and Isotec, Inc. (combined “Gepco”).

Gepco, a manufacturer and provider of high-end cabling solutions for the professional broadcast and entertainment markets, reported 2008 revenues of approximately $46 million.

The Gepco Brand of high-end broadcast cable products is one of the most well-known and respected brands in the professional broadcast industry with an outstanding reputation for unsurpassed quality and performance. Gepco cabling solutions are a critical component to the professional broadcast industry’s continuing innovation in broadcast technologies such as the next generation super or ultra-high definition video.

“With the acquisition of Gepco International and Isotec’s specialty electronic cable business, General Cable expects to significantly expand its share of this important U.S. market as well as leverage General Cable’s global sales infrastructure with this technically superior brand of multimedia cables in markets all over the world. We expect the market for these products to grow at roughly two times GDP in the U.S. and somewhat higher internationally due to ongoing global analog-to-digital conversions,” said Jay Lahman, Vice President and General Manager, Carol, Gepco, and Isotec Brand products.

Greg Lampert, Executive Vice President, President and CEO of General Cable North America said, “I am pleased that Gary Geppert, the Company’s founder and a recognized innovator in the industry, has agreed to stay with the Company. He has built Gepco into a technology leader in the professional broadcast industry, nearly doubling revenues of broadcast products over the last five years, and will continue to lead our efforts to develop new and innovative products.”

Gepco offers a complete line of professional broadcast, entertainment and audio/visual cable; cable assemblies in both standard and custom configurations; interconnect and cable-related accessories; and a full line of optical fiber solutions.

Liberty Global posts Q2 loss

Liberty Global has reported a second-quarter loss on one-time charges as the prior-year quarter benefited from gains on derivatives.

For the latest quarter, Liberty, which operates cable networks mostly in Central and Eastern Europe, reported a loss of $93.1 million, compared with a profit of $428.2 million a year earlier.

The company added 206,000 revenue-generating units during the quarter and 1.5 million in the first half, up 10 per cent from the same period a year earlier. As of June 30, Liberty had 16.7 million customers, subscribing to 26.6 million services, 15.3 million video, 6.4 million broadband Internet and 4.9 million telephone. Nearly 40 per cent of subscribers pay for more than one service.

The average monthly subscription revenue per average revenue-generating unit was $44.81, down 5 per cent. Excluding currency changes, ARPU rose 5 per cent.

Following a recent trend, the number of video customers decreased by 80,000, mostly in the competitive markets of the Netherlands, Hungary and the Czech Republic. Digital cable subscribers grew 10 per cent.

SENCORE potential acquisition of Wegener

Sencore, Inc and Wegener Corporation announced they have entered into a non-binding letter of intent regarding a possible acquisition of Wegener by Sencore.

The acquisition, if completed, would result in a combined company with a best in class management team with tremendous industry knowledge in the content delivery market to offer expanded products for customers, operational efficiencies and converged technology. "I am excited to explore a possible acquisition of Wegener Corporation by Sencore," stated John Suranyi, CEO of Sencore, Inc.

"Wegener's employees, products and markets will be an excellent complement to Sencore's content delivery business. Combined, we believe that the company will generate substantial synergies and efficiencies in product development, marketing, administration, manufacturing, sales and distribution while delivering superior technology solutions and support to our customers."

"Sencore is a quality organization that we will be pleased to join," stated Robert Placek, Chairman and CEO of Wegener Corporation. "The combination of Sencore and Wegener Corporation should provide our customers continued access to innovative products and the exceptional support they have come to expect from WEGENER. We also believe that Sencore's global distribution capabilities will lead to a wider market for WEGENER's products."

Currently used in broadcast, radio, telco, enterprise and cable networks to distribute video and audio content to millions of people, WEGENER provides tailored and off-the-shelf solutions to reduce the long-term cost, integration and maintenance with every solution. Sencore provides broadcasters, satellite and cable operators, telcos, retailers, engineers and installers with innovative operational, signal monitoring and analysis, and video/audio distribution equipment.

Sencore's content delivery products are utilized by broadcast, cable, satellite, and telco service providers, across a wide range of applications. Sencore products set the standard for performance, scalable functionality and cost of ownership and are all backed by the absolute best support in the industry.

The non-binding letter of intent is included as an exhibit to a Form 8-K filing Wegener is making with the Securities and Exchange Commission today, and the following description does not purport to be complete and is qualified in its entirety by reference to the letter of intent included in the Form 8-K.

The letter of intent contemplates an acquisition by Sencore of all of the outstanding shares of Wegener Corporation's common stock for an aggregate cash consideration equal to $6.0 million on a cash-free, debt-free basis.

This purchase price of $6.0 million assumes that Wegener Corporation is free of all debt, taxes payable, accrued transaction expenses and any amounts due to related parties. Accordingly, the per share consideration to common shareholders would be reduced to reflect any anticipated amounts of these items as of the closing date of the acquisition. In addition, the purchase price also assumes that Wegener Corporation will have an appropriate amount of working capital, as of the closing date of the acquisition.

The purchase price would be adjusted accordingly for any anticipated variances in the actual amount of working capital at the closing date. The purchase price is subject to any additional potential adjustments as may be set forth in any definitive documentation providing for this transaction. As part of the letter of intent, Wegener Corporation has made a binding commitment to negotiate exclusively with Sencore for a period of 60 days commencing on the date of the letter of intent and has to pay certain termination fees under certain circumstances.

The closing of any transaction is subject to due diligence, the negotiation and execution of mutually acceptable definitive agreements and the satisfaction of any conditions to closing set forth in those agreements.

There can be no assurance that these discussions will lead to a transaction between Sencore and Wegener Corporation, or that the terms set forth in any definitive agreements will be consistent with the current expectations of Wegener Corporation and Sencore, as contemplated by the terms of the letter of intent.

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PRODUCT NEWS

Global Ad Server Revenue $185 Million in 2013

Revenue from the global ad server market will reach nearly $185 million in 2013. At $79 million North America represents, by a significant margin, the largest regional market for ad servers with the runner-up, Asia-Pacific, expected to deliver only about $55 million in the same year, according to a new report by ABI.

“Video-on-demand has always been a ‘killer app’,” says industry analyst Zippy Aima. “But the new driver for this market is consumers’ desire for more interactivity and more flexibility in what they can do with their video content. Start-over TV, catch-up TV, and similar features are the new benchmarks for VOD uptake.”

Broadcast continues to dominate the overall market, followed by cable and telco offerings. Although slightly slowed by the recession, growth in all segments has continued at a relatively steady pace. “It’s not that vendors aren’t seeing demand for or implementation of the technologies,” Aima notes. “We are, after all, talking about television entertainment.”

Nonetheless this is a very competitive market, with many vendors. Differentiation is about feature-sets, but budgets for upgrading content delivery platforms have shrunk. Aima would not be surprised to see some consolidation in the market over time. “There is room for acquisitions because there are so many players in the market. On one hand that’s good because it fosters competition and innovation, but on the other it limits the market available to each. We may not only see bigger vendors absorbing smaller ones, but also non-video-server vendors moving to add video server offerings to their portfolios.”

Adobe for HBO 'TV Everywhere'

US network HBO has confirmed it will provide encrypted video content to distribution partners for ‘TV Everywhere’-style services using Adobe Systems' Flash multimedia platform, although the broadcaster said that it was open to working with other Internet-video technologies.

HBO's broadband-video complement for TV subscribers - HBO Go - will use Flash and the Adobe-developed encrypted Real-Time Messaging Protocol, referred to as ‘RTMPE’, HBO chief technology officer Bob Zitter revealed.

"The Flash player is relatively ubiquitous across PCs and Macs," Zitter said. "It was important to us to make this offering work on Macs as well as PCs." At the same time, HBO will work on an operator-by-operator basis before the full TV Everywhere vision -- meaning any cable, satellite or telco TV customers can access content from any participating site -- is in place industry-wide. "If the distributor wants to use a different security wrapper that will be up to them," Zitter said.

Annual STB shipments to exceed 200m by 2013

The demand for interactive and personalised television services will push annual worldwide set-top box shipments over 200 million by 2013, as providers overhaul their current base with next-generation models, according to Parks Associates.

The research firm's latest report says the global digital transition and new distribution channels like DTT, IPTV, and over-the-top video services will intensify competition in the television service market. Carriers and manufacturers looking for a competitive advantage will replace their current installed base of set-tops with advanced models capable of supporting applications such as time- and place-shifting and Internet-based offerings.

"Consumers are attracted to the concept of connected CE, with one-third of US broadband households very interested in a set-top box that connects to their PC and Internet service as well as their TV," said Jayant Dasari, research analyst, Parks Associates. "While less than ten per cent are willing to pay a monthly fee, demand is still on an upward trend, especially as the set-top connects to more and more services."

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PEOPLE IN THE NEWS

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RESEARCH NEWS

SCRI RESEARCH NEWS

2009-2010 Broadcast Pro Video Marketplace Reports

2009-2010 Broadcast Pro Video Marketplace Reports Series is now available. A total of 25 individual product reports as well as a macro industry overview and micro quantitative data analysis reports are available. Contact des_chas@scri.com for more information.

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