SFL and educational learning

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Sky Deutschland AG | Annual Report 2012

Growing pay-TV market

While pay-TV in Germany has underperformed in the last 20 years, the industry has been gaining traction since 2010, with pay-TV penetration growing from 10.3 percent in 2008 to 17.1 percent (Germany and Austria) at the end of 2011. Sky is the leading pay-TV provider in Germany and Austria.

Other pay-TV operators include cable network providers such as Kabel Deutschland, Unitymedia, Kabel BW, Tele Columbus, PrimaCom and KabelKiosk, as well as IPTV platforms such as Entertain by Deutsche Telekom and Vodafone TV. Compared to European peer markets, pay-TV penetration in Germany and Austria is well below average.

Sky expects the growth trend to continue over the coming years with HDTV being one of the key drivers for successful marketing of paid content. The number of HD enabled TV sets is increasing strongly. At the end of 2011, approximately 63 percent of German and Austrian TV households – or 27 million of 42 million TV households – own a HD enabled TV set compared with only 42 percent in 2009 according to market research organisation IHS Screen Digest. The organisation expects the number of HD households to grow to around 30 million by the end of 2012. (source: © IHS, www.ihs.com, July 2012. All rights reserved)

Consumer concerns over international economic volatility continued at year’s end, which led to mixed consumer sentiment in December. While income expectations grew slightly, the economic outlook and propensity to buy both decreased. Despite a moderate fall, consumer sentiment generally remains at a supportive level to drive further expansion in domestic demand.

Source: Copyright © IHS, www.ihs.com, October 2012 (*April 2012).All rights reserved;

annual reports of the providers; press releases

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Competition

Sky competes with a number of media and entertainment companies to secure a supply of attractive programming for its customers. As a provider of TV entertainment, Sky faces competition from free-to-air (FTA) services, among others. In Germany and Austria, FTA channels operated by public and private broadcasters – in particular ARD, ZDF, ORF, RTL and ProSiebenSat.1 – offer competitive programming, e.g. films, series and live sports. Sky also faces competition from platform operators offering both pay-TV packages and video-on demand services often bundled with telecommunication services. Besides the core subscription business, Sky competes with other media and entertainment companies for advertising sales. To set itself apart from the competition, Sky focuses on the promise of delivering a unique entertainment experience through the combination of exclusive high quality content, exciting innovations and great customer service.

Political and legal environment

At the copyright forum in September 2012, the Federal Minister of Justice announced the draft for an amendment to German Copyright Law as well as a “bouquet” of measures to strengthen copyright. These measures have not yet been issued.

As before, Sky Deutschland supports additional initiatives to protect against the financing of websites with illegal content through advertising.

On a European level, the commission has begun consulting on processes and measures for private enforcement of intellectual property rights. This information will be used to improve private enforcement among member states. Sky Deutschland welcomes this consultation and is actively working on submissions with German organisations.

The drafts for so-called advertising guidelines which were prepared as part of the new state gambling treaty took effect from the beginning of February 2013. The advertising guidelines regulate the conditions for advertising on TV and the internet in the sports betting market and also include a prelimi-nary examination of the advertising to be shown.

Strategy

At Sky, the focus of business operations is on acquiring and retaining customers and increasing ARPU to grow revenue to deliver sustainable profitability. In order to accomplish this, the Company strives to offer exclusive high quality programming, develop groundbreaking innovations and support this with outstanding customer service. The introduction of the Sky brand to the German and Austrian markets in 2009 came with the promise of quality, innovation and value. Since then, Sky has delivered constant innovation and continuously expanded its content and service offering. As a result, customer satisfaction is at close to record high levels.

Business development in the year 2012

2012 was significant for Sky in a number of ways. The steadily rising customer base and continued growth in ARPU led to a strong increase in revenue and an improvement in the overall financial result. With the purchase of expanded exclusive broadcast rights for the Bundesliga until the 2016/2017 season, Sky secured its largest and most important programming rights package which adds IPTV and mobile distribution to the existing cable, satellite and open internet rights. The company also reached wide-ranging sales and marketing agreements with the major German cable operators Unitymedia, Kabel BW and Kabel Deutschland, as well as a partnership with Deutsche Telekom to feed in the program packages of Sky over Telekom’s IPTV network. In addition to high quality programming, Sky continues to offer innovations that clearly improve the entertainment experience. This is reflected in strong levels of customer satisfaction and recommendation rates. The demand for Sky’s leading HD offering remains strong, serving as an important driver of growth. Over two million Sky subscribers already enjoy high definition television, and with an HD offering from Sky that spans over 60 HD channels, they have a broad channel offering from which to choose from. The innovative services Sky Go and Sky Anytime also saw major expansion, while the penetration of the Sky+ HD hard disk receiver virtually doubled during 2012. The receiver is fully integrated into the Sky service and helps to generate a more loyal customer base.

Unique content

Sky offers the most exclusive and highest-quality TV programming in Germany and Austria. To secure and improve its leading TV offering, Sky consistently acquires and renews key content rights.

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Sky Deutschland AG | Annual Report 2012

Film Package: Home of Movies

A core aspect of the Sky service is its exclusive film offering with about 20 TV premieres per month up to a year before they air on free TV. Ten film channels bring over 80 films from different genres every day in brilliant digital picture quality, 16:9 format, optionally in original English version and with Dolby Digital sound.

In January 2012, Sky and Warner Bros. International Television Distribution announced the expansion of their cooperation. The long-term agreement includes the exclusive payTV and SVoD rights for all new releases during the first linear pay-TV window. The films are also available via Sky Go and Sky Anytime.

In addition, Sky expanded its position as the number one film broadcaster in Germany and Austria in the first quarter of 2012 through additional multi-platform contracts with three independent German film suppliers:

Splendid, Telepool and Tobis. The agreements encompass linear broadcast-ing on all Sky film channels as well as exclusive SVoD and VoD rights for use on Sky Anytime, Sky Select and Sky Go.

In June 2012, Sky and Sony Pictures Television agreed on a multi-year exten-sion of their cooperation. The contract includes the exclusive pay-TV and SVoD rights for all current Sony Pictures films on all platforms, including satellite, cable, IPTV, internet and mobile devices during the first linear pay-TV window. And for the first time, Sky also acquired from Sony Pictures the licence to broadcast brand new TV series for the first time on German television as well as catalogue titles.

The agreement with Constantin Film on the pay-TV premiere rights for Constantin productions and co-productions from July 2012 underlines the position of Sky as the number one in the film sector in Germany and Austria. In addition to linear broadcasting through the Sky film channels, Sky also secured the PPV and TvoD as well as SVoD rights. This means that the content will also be available via Sky Select as well as Sky Anytime and Sky Go.

Additionally, Sky once again secured film rights to broadcast the first-rate offering of Tele München Group (TMG). The new contract, which was concluded in August 2012, grants Sky exclusive pay-TV rights to new hit films as well as catalogue titles. Tele München Group is one of the most important independent film rights companies in Germany.

Sky Atlantic HD

Launched in May 2012, Sky Atlantic HD broadcasts the critically acclaimed productions from HBO, the most successful premium channel in the US. All programmes are available in both German and the original English, and some air in Germany and Austria directly after the US premiere. Sky Atlantic HD broadcasts exclusively in HD and is available to customers with the Film package and HD. The content from Sky Atlantic HD is also available on demand through the innovative services Sky Anytime and Sky Go.

Emmy-winning shows and films on Sky

The Emmy Awards nominate the best programmes in television.

The following prize-winners of the current year can be seen on Sky:

“Boardwalk Empire” (Sky Atlantic HD)

“Game of Thrones” (Sky Atlantic HD)

“Downton Abbey” (Sky Emotion)

“Veep” (Sky Atlantic HD)

“Hemingway & Gellhorn” (Sky Atlantic HD)

“Game Change” (Sky Atlantic HD)

“Breaking Bad” (AXN)

“Curb Your Enthusiasm” (Sky Atlantic HD)

“The Good Wife” (Fox HD)

“American Horror Story” (Fox HD)

“The Walking Dead” (Fox HD)

“Two And A Half Men” (TNT Serie HD)

“George Harrison – Living in the Material World” (Spiegel Geschichte)

The “Harald Schmidt Show”

In September 2012, German “Late Night King” Harald Schmidt began presenting his “Harald Schmidt Show” exclusively on Sky Atlantic HD, Sky Hits, Sky Hits HD and Sky Comedy as well as via Sky Go and Sky Anytime.

Sky Welt: Entertainment for the entire family

The Sky Welt package provides a comprehensive entertainment offering for the entire family: from crime to documentaries, comedies, science fiction and kids’ programming as well as a large and diverse selection of HD content.

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Since April 2012, the new HD channel MTV Live HD became a part of Sky Welt making it available to all Sky HD satellite customers at no extra charge. Among the highlights are premium productions like MTV Unplugged, MTV World Stage, MTV European Music Awards, MTV Video Music Awards and MTV Live.

TNT Serie HD, the HD version of series channel TNT Serie from Turner Broadcasting System Deutschland, was launched on Sky in Germany and Austria in June 2012. All programming is shown without commercial breaks and with the option of viewing it in German or the original English version.

Highlights from the channels Cartoon Network and Boomerang are also available through Sky Anytime and Sky Go.

In August 2012, Sky and Discovery Networks Deutschland extended and expanded their partnership. The long-term contract includes the distribution of Discovery Channel and Discovery Channel HD through all platforms, including cable, IPTV, internet, mobile devices and exclusively via satellite. Discovery Channel and Discovery Channel HD feature outstanding docutainment. Since January 2013, programming from both channels has been available on demand, and will soon also be offered for customers via mobile devices.

With the launch of the action channel AXN HD, Sky expanded its market-leading HD program offering in Germany and Austria. The HD channel of Sony Pictures Television Deutschland Networks was launched on 4 October and is available for all Sky satellite customers and in selected cable networks as part of the Sky Welt package.

More than 2 million Sky Welt HD-customers

In 2012, Sky Deutschland surpassed the benchmark of 2 million Sky Welt HD-customers. At year’s end, Sky had a total of 2,249,000 Sky HD custom-ers who had access to at least the 13 HD channels included in the Sky Welt package. As of January 2013, on satellite, the overall Sky HD offering comprises a total of 64 channels in brilliant HD quality, covering exclusive live sport, current blockbusters, documentaries, award-winning TV series, kids’ programs as well as access to the HD versions of free-to-air channels.

The number of Sky Premium HD customers rose by 56 percent in 2012, reaching a total of 1,514,000 (2011: 974,000). This means that 45 percent (2011: 32 percent) of all Sky subscribers chose to enjoy Sky’s leading premium HD offering.

New original programming: “Im Leben von …” (“In the Life of …”)

After the successful first season of the new in-house format “Im Leben von…” on Sky Krimi, the second season of the interview series began in October 2012. With this format, Sky presents cast members of German crime and thriller programs providing a unique insight into the personalities of the stars. Around “Im Leben von …”, Sky presents selected episodes of crime series of the respective guests.

Extended cooperation with ZDF Enterprises

With the extension and expansion of the cooperation with ZDF Enterprises in June 2012, Sky has secured comprehensive rights to crime thriller formats and films via satellite, cable, IPTV, internet and mobile devices. The long-term cooperation agreement includes exclusive pay-TV rights for popular crime series such as “The Rosenheim Cops”, the “SOKO” series, “Ein Fall für Zwei”

(“A Case for Two”) and “Bella Block”, all of which have their home on the channel Sky Krimi. In addition, a selection of international films will air for the first time on German television exclusively on Sky.

Extension of the cooperation with Beate Uhse

In early January 2013, Sky Deutschland and Beate Uhse agreed to a multi-year extension of their existing cooperation. As a result, Beate-Uhse.TV will remain available exclusively through Sky in Germany and Austria in the coming years.

The contract encompasses all broadcast platforms as well as comprehensive Catch-Up and SVOD rights. In addition, all Beate-Uhse.TV original productions will air for at least one year exclusively on Sky.

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Sky Deutschland AG | Annual Report 2012

Extension of the partnership with Universal Networks International Germany On 7 January 2013, Sky announced that it had extended and expanded its comprehensive partnership with Universal Networks International Germany.

The distribution of the SD channels Syfy and 13th Street Universal in the Sky Starter and Sky Welt packages was extended for several years with highlights from both channels also to be offered on demand via Sky Anytime and Sky Go.

As part of the agreement, Syfy HD and 13th Street Universal HD were also added to the Sky Welt package for all Sky customers with a satellite connection in January 2013. Additional expansion of the HD portfolio is planned for 2013.

In addition, with the extension of the licence agreement with NBCUniversal International TV Distribution, Sky Deutschland has secured top quality film rights for Germany and Austria for the coming years. The long-term agreement includes exclusive pay-TV and SVoD first broadcast rights on all platforms (satellite, cable, internet and mobile). As a result, movies are also available on demand for flexible viewing over the innovative Sky Anytime and Sky Go services. The rights also comprise broadcasting Universal movies over the pay-per-view service Sky Select.

Sky Starter Package

Since October 2012, new customers in Germany and Austria can access Sky for just €12.90 per month with the new Sky Starter package. The package which is available through satellite and cable includes a broad selection of attractive channels from the Sky Welt package for the entire family. The Sky Starter package is seamlessly embedded in the existing offering structure of Sky. In order to access the exclusive Sky HD and premium services, customers have to first upgrade to the Sky Welt package.

Home of football

Sky broadcasts the most comprehensive football offering on German and Austrian TV, including all live matches of the Bundesliga and second Bundes-liga, all live matches of the Austrian tipp3-Bundesliga and “Heute für Morgen”

Erste Liga live, the UEFA Champions League and the DFB-Pokal, as well as all the top UEFA Europa League matches and selected matches of the English Barclays Premier League.

Bundesliga rights extended

On 17 April 2012, the DFL announced that it had granted Sky the exclusive pay-TV rights for all live Bundesliga and second Bundesliga matches for the seasons 2013/14 through 2016/17. This covers the rights for all platforms, including those currently held across satellite, cable and web and adds IPTV and mobile. Sky will pay a licence fee of

€485.7 million per season on average.

This decision ensures Sky customers will have full access to the 612 live matches per season until 2017. It also means that Sky will continue to offer all matches of the Bundesliga and second Bundesliga live and in HD. In addition, the extended and expanded rights provide business certainty for the next years, and will open exciting new opportunities for growth and innovation, through the use of newly acquired IPTV and mobile rights.

Sky remains number one in Austrian football as well

Customers will be able to watch all Austrian Fußball Bundesliga matches live on Sky until the 2015/2016 season. This was agreed upon in the new contract between the Liga and Sky, which was signed in December 2012. The new contract applies for three years and encompasses all matches via satellite, cable, internet, IPTV as well as mobile broadcasting.

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Most successful Bundesliga season ever

For Sky, the recently concluded 49th Bundesliga season 2011/12 was the most successful ever. With up to a total of five million viewers tuning in over the entire matchday and more than 2 million viewers reached during an individual Sky broadcast (with conference and other individual matches), Sky achieved record ratings since official measurement of ratings began in April 2011. In addition, on Saturday afternoon during the Bundesliga conference, Sky had an average audience reach of 17.2 percent, making it the market leader in German television in the target group of men between the ages of 14 and 49. This result underlines the growing attractiveness of the company’s leading football offering.

Sky can boast outstanding ratings in the current 50th Bundesliga season.

With the broadcast of the top match of the 10th matchday between Hamburger SV and FC Bayern München, Sky set a new ratings record for the current season with 1.26 million people watching the match. The match had a total market share of 4.9 percent and a very strong 6.9 percent among those 14 to 49 years old.

Franz Beckenbauer and Lothar Matthäus exclusively on Sky

Franz Beckenbauer and Sky extended their long standing relationship. The

“Kaiser” will continue in his role as an exclusive expert, analysing the top matches of the Bundesliga and regularly appearing on the Sunday football debate show “Sky90 – Die Kia Fußballdebatte”. Since the current season, Franz Beckenbauer now also covers the UEFA Champions League – exclu-sively on Sky.

At the start of the current Bundesliga season, Lothar Matthäus joined the team of Sky experts on “Topspiel der Woche” (“Top Match of the Week”). By recruiting the record national player and internationally-recognised team manager, Sky has added another top German football personality to analyse Saturday evening Bundesliga matches.

First female Bundesliga commentator

In 2012, Sky, in cooperation with Sport Bild, held an open casting call to find the first female Bundesliga commentator. On 17 November 2012, Christina Graf was selected from among over 1,200 applicants. The 27-year-old

In 2012, Sky, in cooperation with Sport Bild, held an open casting call to find the first female Bundesliga commentator. On 17 November 2012, Christina Graf was selected from among over 1,200 applicants. The 27-year-old