EFTA01385484.pdf

3 January 2018 HY Corporate Credit l-lY Multi Sector.Media, Cable & Satellite Cable / Pay-TV: Market Weight Relative to the DB Index The alarm bells around the maturation of the Pay-TV industry have been going The reports of the Seth of linear off for years. Despite clear headwinds that have undoubtedly had negative video will prove to be - as Mark impacts on cash generation, management throughout the industry has done Twain would have saki - weedy well in not only weathering the storm, but positioning their respective companies for the future. For the wired cable companies, the natural business weggerated We still expect pivot has been focusing on generating a higher mix of revenue from declines but we see linear video broadband and venturing into commercial, which just so happens to have a decreasing at • modenste rate materially better margin and cash flow profile than the historical linear TV with some carders such as DISH business. For DBS, the challenge of reinventing itself has been much more and ATT offsetting some of these difficult considering it doesn't have an HSD offering into the household. While DTV got acquired and integrated into a large platform at AT&T that has losses with lower-ARPU OTT inevitably helped its relevance and extended its lifespan, both DTV and DISH video adds - partially lessening saw the writing on the wall early and instead of trying to exclusively protect its the Mow. legacy subscriber base, which is a given, they created two of the industry's best OTT products. In addition to fighting top-line difficulties, margins have also been under In terms of cord shaving/cutting, pressure as content and programming costs have been increasing at high- host quarter we actually sew the single digit I low-double digit rates for the better part of a decade. The bend of cord cutting decline fir response from operators has varied, but recent approaches can all be filed as the first dine 6) recent history. It incrementally emboldened compared to even just five years ago prior to the Pay-TV market cracking. Certain operators have resorted to going dark on is too toady to at this • channels during negotiations. Others have completely eliminated certain sustainable bond though It programming altogether and substituted with more attractively priced might be able to oiler some alternatives. Then there are those providers like WaveDivision who simply pass support to the nodan that the the cost of programming through to customers. The integration of OTT raging concerns ownlinear video products into the platform is more prevalent and actually lowers churn as the complementary features and all-in-one place for access produces a more might prow overdone The seamless, enjoyable experience particularly via a cross-catalog guide. While blow worry for us remains the OTT marketplace has gained market share and inspired certain content pricing, which continues demographics to cut the cord and will continue to do so over time, we believe to ina•as• at a pace that seems the worries over linear TV trends are a bit too draconian. For example, in its impossible to ofhetkodre video 3Q17 Video Trends Report, TiVo points out that the number of respondents in business. its survey that have cut cable within the previous 12 months declined for the first quarter since 3Q16. It could just be an outlier, but after trending up 3% y/y for the past year, it could also present a data point that supports the notion that the biggest wave of cord cutting are the first movers, which is now entering its own maturity stage. Should that trend continue declining, that presents an even longer tail for linear TV which we believe would help the DBS business most given they're more levered to that segment. Deutsche Bank Securities Inc. Page 211 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086770 CONFIDENTIAL SDNY_GM_00232954 EFTA01385484