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SPT Business Overview November 13, 2012 DRAFT – FOR DISCUSSION ONLY Sony Pictures Television Business Overview Sony Pictures Television Production • Development, acquisition, and production of television programs for broadcast, basic cable, and premium cable networks • Program genres include scripted comedies and dramas and non-scripted reality, talk, and game shows Distribution Networks • Sale of SPE’s film and television content to television and digital customers • Management and distribution of branded networks and channels worldwide • Customers include U.S. and international broadcast and cable networks, U.S. local television stations, and digital services, e.g., Netflix • International brands include AXN, SET, and Animax Make sure right slide Television Business is Growing SPT EBIT continues to grow at a rate of 15% year-over-year SPT Consolidated EBIT $MM Monetization 900 • Networks – Networks has an EBIT CAGR of 23% across the plan, breaking earnings records in each and every year. The growth comes from all regions across the world as newer channels mature to profitability and more mature channels grow or maintain their margins • U.S. Production & Ad Sales – EBIT grows 21% over the plan from $290MM to $351MM driven by a steady pipeline of programming sold to SVOD and Off-net syndication: Last Resort, Happy Endings, Justified • International Production – International Production has an EBIT CAGR of 78% across the plan. Moderate organic growth from existing operating companies is supplemented by EBIT contributions from recent acquisitions Left Bank and Silver River as well as the inclusion of a hit format starting in FY15 $859 800 $765 700 $625 600 $564 11 500 400 553 300 200 100 0 FY13 Frcst FY14 Current FY15 Current FY16 Current 3 Update with slide 4 of SPT MRP Deck numbers to show full US and Int’s distribution for FY13 and Fy16 Sony Pictures Television Today and Tomorrow ($MM) U.S. Distribution Int'l Distribution Int'l Production U.S. Production & Ad Sales Networks Total ($MM) Revenue FYE13 FYE16 48 40 9 5 294 573 1,761 2,191 1,536 2,580 $ 3,648 $ 5,389 FYE13 FYE16 34 25 (45) (54) 6 34 290 351 268 503 $ 553 $ 859 ($MM) Revenue $6,000 EBIT $5,389 EBIT $1,000 $859 $900 $5,000 $4,000 $800 $700 $3,648 $600 $3,000 $553 $500 $400 $2,000 $300 $200 $1,000 $100 $- $- FYE13 FYE16 FYE13 FYE16 Sony Pictures Television Market Update ● Growth opportunities exist across the television industry − The global number of television households continues to grow − There are a greater number of distribution customers in the marketplace − Affiliate fees are generally stable; ad sales have rebounded since the 2008 downturn, although economic conditions in some territories have slowed growth − International consumption of U.S. TV dramas continues to be strong − SVOD customers are creating greater demand for studio content ● The television industry also faces a number of challenges − European economic issues have slowed the growth of the ad sales market in many territories − Studio programming prices are expected to rise creating margin pressure on networks − Volatility of foreign currencies creates uncertainty for predicting financial results in U.S. dollars − Competition across the global TV industry remains strong Television Strategic Priorities Marry with next slides Strengthening economics of existing businesses • Develop new content and keep SPT’s domestic slate of original TV series on the air to drive substantial syndication profits • Focus on maximizing operational efficiencies for networks and international TV production • Generate more international local language TV series with the intent of creating a global hit • Grow Crackle’s U.S. ad business by increasing investment in its infrastructure 6 Television Strategic Priorities Marry with next slides Pursue Growth Opportunities • Build on syndication success (The Dr. Oz Show) to expand with A-list talent (Queen Latifah) • Capitalize on opportunities with emerging SVOD players (e.g., Netflix, Amazon, Hulu) to drive incremental value for new and library product for film and TV • Expand in key markets with our branded networks, local and international TV series, and production ventures − Complete a regional channel acquisition in India and pursue channel acquisitions in other select markets − Continue to invest in international production companies that create content with specific focus on the UK but also possibly in Scandinavia, Israel, Australia and other content rich territories; in addition, identify potential opportunities to expand into emerging markets with strong TV growth potential where SPT does not currently have a presence 7 Television Strategic Priorities Marry Pursuing One Sony Collaboration • Become the primary ad sales organization across Sony • Draw on SPE’s development, production and programming expertise to create content for Sony’s networked devices • Leverage our significant and expanding networks presence in India and Latin America to benefit Sony as a whole • Utilize our networks’ global reach to assist in marketing initiatives 8 US Production U.S. Production & Ad Sales: Forecast Make this just US Production Strong and Consistent Earnings Growth MRP Assumptions U.S. Production & Ad Sales Revenue and EBIT ($MM) Revenue ($MM) EBIT ($MM) 400 2,000 $351 $351 1,500 1,000 350 $298 300 $290 $1,761 $1,911 $2,011 $2,191 250 500 FY13 FY14 FY15 • Leverage slate of network dramas FY16 • Capitalize on new market entrants to help build future revenue pipeline 200 • Develop organization 150 • Build stronger relationships in key markets U.S. Production Current Series, Pilots & Development Format Significant contribution from current series as they enter off-network syndication MRP Assumptions EBIT from Current Series, Pilots & Development • Rules of Engagement sold to Netflix and U.S. syndication market for Fall 2012 • Community sold to Comedy Central and U.S. syndication market for Fall 2013 launch. Already sold to Hulu with an initial availability in FYE12 • Build on our syndication success with new Queen Latifah series for Fall 2013 • Initial off-net syndication availabilities for Happy Endings, Last Resort, Mob Doctor, Big C and Justified in FYE14 and Franklin and Bash in FYE15 $140 $120 $120 $109 $100 $80 $73 $84 $60 $40 $20 $0 FYE13 FYE14 FYE15 FYE16 Excludes Wheel of Fortune, Jeopardy!, Days of Our Lives and Y&R ($ in Millions) 11 U.S. Production Library, Game Shows and Daytime Serials Format Maximizing the contribution to EBIT from Core Programs EBIT ($ in Millions) Library $253 Wheel of Fortune and Jeopardy! $248 32 32 119 112 $258 31 124 Daytime Serials MRP Assumptions $271 31 136 102 104 103 104 FYE13 FYE14 FYE15 FYE16 • Wheel of Fortune and Jeopardy! are renewed through 15/16 season • The Young and the Restless is renewed through 12/13 season and Days of Our Lives is renewed through 13/14 season • Production cost control and reduction efforts continue on all programs 12 Make sure right slide U.S. Production – Strategic Priorities • Continue to grow our broadcast drama slate and support our current primetime dramas Charlie’s Angels, Pan Am and Unforgettable to secure syndication opportunities • Nurture our broadcast comedies Community and Happy Endings to reach syndication • Invest heavily in A-list writers, directors and producers for future drama/comedy/unscripted development • Continue to maximize international revenues through exploring co-production opportunities and maximizing tax credits - Develop series with broad international appeal with globally marketable talent to sell in the US and abroad • Continue to be on the forefront of the burgeoning subscription VOD market (Netflix, DirecTV) to sell and develop series • Build on our syndication success (Dr. Oz, Nate Berkus) to expand into the daytime market with A-list talent • Expand our prime time broadcast reality slate off the success of Sing Off, Shark Tank and Re-Modeled and continue to sell formats abroad • Continue to maintain a balanced portfolio across the cable and broadcast business to secure SPT’s position as a prime destination for premiere talent in scripted and non-scripted programming 13 U.S. Production: Challenges and Opportunities U.S. Production: Organization Overview • TBD Org chart highlights select individuals U.S. Production: Where we can we do better • TBD Ad Sales Make this just Ad Sale U.S. Production & Ad Sales: Forecast Strong and Consistent Earnings Growth MRP Assumptions U.S. Production & Ad Sales Revenue and EBIT ($MM) Revenue ($MM) EBIT ($MM) 400 2,000 $351 $351 1,500 1,000 350 $298 300 $290 $1,761 $1,911 $2,011 $2,191 250 500 FY13 FY14 FY15 • Leverage slate of network dramas FY16 • Capitalize on new market entrants to help build future revenue pipeline 200 • Develop organization 150 • Build stronger relationships in key markets U.S. Ad Sales – Strategic Priorities • Continue to drive additional revenue for first run through advertiser integrations – Television Priorities Make sure this is right slide i.e., The Dr. Oz Show: Walgreens, Subway, Weight Watchers • Expand current base of advertisers for :30s and :10 to off-nets • Develop emerging Cable Networks business – Amount of potential revenue growth tied to sub growth • Find new 3rd party representation opportunities • Continue to support cable/network properties through Branded Entertainment • Activate cross-platform sales of Seinfeld to grow TV and digital dollars – Working with Nielsen to create cross-platform ratings (extended screen) Digital • Drive dollars to Crackle with connected device strategy Priorities • Increase PlayStation Network revenue through enhanced reporting • Seek new opportunities/platforms to grow digital portfolio – – • BIVL, PSN, iPad, Android i.e. Sharecare Find new 3rd party representation opportunities 19 U.S. Ad Sales – Growth Strategy Current Environment Opportunity Strategy Make sure this is right slide • Year-over-year growth in TV ad revenue is limited by available shows • Opportunities for 3rd party ad sales representation in TV are declining • Diffuse volatility in TV ad revenue market by growing a strong digital base • Digital markets are continuing to emerge through an increase in digital platforms (i.e., mobile devices, game consoles, handheld tablets) • Client base extends beyond traditional entertainment markets which allows for a more diverse portfolio – e.g., Sharecare • Consolidate inventory across platforms to create a digital ad network • Initiate video only digital upfront market • Utilize audience tracking to optimize CPMs • Grow 3rd party and digital revenue from $32MM to $106MM over the plan years resulting in profit contribution growth of almost 200% 20 U.S. Ad Sales: Challenges and Opportunities U.S. Ad Sales: Organization Overview • TBD Org chart highlights select individuals U.S. Ad Sales: Where we can we do better • TBD International Production International Production: Forecast MRP Assumptions Int’l Production Revenue and EBIT ($MM) Revenue ($MM) EBIT ($MM) 700 40 $34 600 30 $28 500 35 25 400 20 300 200 100 $13 $530 $573 $433 10 $294 $6 5 - - FY13 • 15 FY14 FY15 EBIT excludes FY13 monetization of $11MM FY16 • Continue investment into companies which create IP with focus on UK; review opportunities in Scandinavia, Israel, Australia and other content rich countries • Strategically deploy central development fund • Launch competitive incentive plan to foster creation of global IP and multi-territory format exploitation and to attract/retain talent • Streamline daily administrative/operational processes allowing managing directors to focus on content creation • Increase collaboration between operating companies • Establish culture that fosters creativity centrally and across operating companies International Production Operating Companies Fix format Production companies in 13 countries around the world covering multiple regions; to date, SPT productions have aired in 88 countries and 73 languages Hilversum London (WW Production capacity) Beijing Cologne Paris Moscow (Russian speaking market) Rome Culver City Beirut Miami (Latin America & U.S. Hispanic market) Cairo Dubai (Arabic speaking market) Hong Kong (Asia market excl Japan) Bogota Sao Paolo 26 Make sure right slide International Production – Strategic Priorities Drive development of blockbusters and continue to expand global network Develop and produce hit format Build scale via strategic investments Launch competitive incentive program • Develop new break-out hits by focusing creative, operational and financial efforts on a few high potential formats (e.g., Exit List, Angry Birds, Famous) • Identify and attach new creative talent to group (in any form or shape), be competitive in remuneration, and initiate start-ups • Initiate, coordinate and intensify light entertainment collaboration between US and International Production businesses to drive more synergies and production flow on both sides • UK is top priority – imperative to develop significant local production presence • Strengthen presence in major European markets and expand to emerging territories • Drive interactive extensions and revenue opportunities and innovative multiplatform businesses • Pursue strategic partnerships to expand market share in key markets (especially the U.K.) and opportunistically enter new markets in Eastern Europe and Asia • Important for hit format creation, multi-territory format exploitation and talent retention • SPT’s major competitors all benefit from similar programs – e.g., Banijay, Zodiak 27 International Production Key Initiatives to Drive Earnings Growth Marry with previous slide The current MRP is based upon more reasonable expectations for the volume of series and margins that can be achieved with both internally developed and acquired product • Continue to exploit Who Wants to Be a Millionaire and develop a stable base of other successful formats • Make more focused and sustained investment in development executives, producers, production companies, and new content especially in the UK − The acquisition of Left Bank gives SPE a stronger foot-hold in the UK • Foster a more creative culture to develop intellectual property by: − Realigning the organization, including a new President and a creative head − Combining the print sales and format sales teams to better serve our buyers − Creating a strategically centralized development fund − Implementing a competitive incentive plan • Simplify administrative and operational processes 28 International Production: Challenges and Opportunities International Production: Organization Overview • TBD Org chart highlights select individuals International Production : Where we can we do better • TBD U.S. Distribution U.S. Distribution: Forecast U.S. Distribution Revenue and EBIT ($MM) Revenue ($MM) EBIT ($MM) 900 800 40 $34 $36 35 700 30 $28 600 25 $25 500 400 20 $778 $778 300 $671 $632 15 200 10 100 5 - • Increase feature library sales despite the ‘flat’ market • Leverage SVOD licensing and strategic product planning for U.S. channel carriage FY13 • MRP Assumptions FY14 FY15 FY16 Revenue and corresponding profit contribution volatility is largely driven by release timing, size of theatrical slate and timing of off-net syndication avails (e.g., Rules of Engagement, Community, Happy Endings) Make sure right slide U.S. Distribution – Strategic Priorities • Although uncertain, an opportunity may exist to modify the Starz pay TV deal Pay TV Subscription – Internet caps in the existing Starz deal have created the renegotiation opportunity – Negotiating directly with Netflix on consideration – If the Starz deal is not renegotiated, an opportunity exists to make deals directly with Netflix that are not related to the content included in the Starz pay TV deal • Sell library film and TV series into non-exclusive subscription deals • Complete WWAG deal with Netflix • Split library windows, license multiple rights, structure non-exclusive deals Cable TV • Aggressively sell slate carve-out windows utilizing more aggressive inventory tracking and planning • Sell offnet cable series: Drop Dead Diva (linear avail FY14), Justified (avail FY14), Damages (linear avail FY15) • Develop consistent flow of first-run product with top talent Syndication • Sell all offnet syndication series: Rules of Engagement (avail FY13), Community (avail FY14), Happy Endings (avail FY15) • Sell library film and TV series onto broadcast digital platforms • Acquire 3rd party distribution rights with minimal financial risk (e.g. Right This Minute) 34 U.S. Distribution: Challenges and Opportunities U.S. Distribution: Organization Overview • TBD Org chart highlights select individuals U.S. Distribution: Where we can we do better • TBD International Distribution International Distribution: Forecast Strong and consistent growth Int’l Distribution Revenue and Profit Contribution ($MM) Revenue ($MM) EBIT ($MM) 2,000 700 1,900 $685 1,800 $662 $1,895 $634 $1,712 1,500 660 $653 1,700 1,600 680 640 $1,772 620 $1,630 1,400 600 FY13 FY14 FY15 FY16 MRP Assumptions • Leverage slate of network dramas • Capitalize on new market entrants to help build future revenue pipeline • Develop organization • Build stronger relationships in key markets Make sure right slide International Distribution – Strategic Priorities Exploit market trends and broadcaster relationships to maximize content value • Sustained delivery of network dramas will enable revenues for TV product to double to >$500MM by FYE15 and amplify feature film revenue Leverage Slate of Network Dramas – – – Capitalize Upon New Market Entrants Build Secure Pipeline of Future Revenue Develop Stronger Relationships in Key Markets • • Continue to work closely with SPT U.S. Production to secure and sustain strategically important network dramas Broaden scope of broadcaster relationships to explore English language, European content, co-production opportunities Look for key series acquisition opportunities Take full advantage of opportunities with emerging SVOD players Work with a wide range of partners to develop deal structure options to help them maximize value of their offerings and compete with traditional businesses • • Close long-term deals in key markets over the plan • Focus on select emerging markets to expand SPT’s presence and better capitalize on opportunities (Netherlands, Scandinavia, Poland, Hungary, South Africa) • Deepen relationship with clients to ensure success through partnering on launches, promotions Ensure we keep rights to key revenue-driving feature film franchises 40 International Distribution: Challenges and Opportunities International Distribution: Organization Overview • TBD Org chart highlights select individuals International Distribution: Where we can we do better • TBD Networks Networks: Forecast Strong and Consistent Earnings Growth EBIT reaches over $500 million in FYE16, growing at a 23% CAGR over the MRP period Networks Revenue and EBIT ($ in Millions) Revenue MRP Assumptions EBIT 3,000 600 $503 2,500 500 $410 2,000 $328 1,500 $268 1,000 $1,536 400 $2,580 $2,258 300 200 $1,961 500 100 0 • Focus next 18 months on maximizing efficiencies in existing operations • Continue to selectively launch channels in new and existing territories • Increase investment in Crackle U.S. advertising and technical infrastructure 0 FYE13 FYE14 FYE15 FYE16 18.2% 19.5% EBIT Margin: 17.4% 16.7% • Volatility of foreign currencies has had a particularly harsh impact on Networks earnings Networks EBIT by Region Format As a result of recent investments, North America and Europe grow as a percentage of Networks’ EBIT from 24% in FYE13 to 36% in FYE16 EBIT FYE13 Rest of Asia / Australia 16% India 39% North America 17% Latin America 21% EBIT FYE16 Europe 7% Rest of Asia / Australia 12% India 36% North America 23% Latin America 16% Europe 13% 46 Networks: Brands Highly successful network brands benefiting from global infrastructure SET GENERAL ENTERTAINMENT AXN GENERAL ENTERTAINMENT ANIME/YOUTH LIFESTYLE/MUSIC PARTNER NETWORKS DIGITAL MOVIES Networks – Strategic Priorities Make sure this is right slide • Buy out Indian partners and realize an Indian regional opportunity • Explore ways to leverage studio relationship with GSN • Carry on launching channels in new and existing territories to increase scale and increase sales leverage and program buying power • Continue to invest in ad and affiliate sales infrastructure (Dolphin, AXN Central Europe, Russia Channels, Crackle Latam) • Continue to secure programming supply through studio output deals and investment in original programming (The Firm). Increase 3rd party acquisitions for US businesses • Carry on expanding U.S. channels (CineSony, FEARnet buy up) and increase U.S. channels’ contribution to portfolio throughout the MRP period • Maximize value in Crackle US and expand internationally (Latam, Brazil, Canada) • Expand SPTL Asia facility to service EMEA channels 48 Make sure this is right Networks – A Continuation of Strong Sustainable slide Growth Networks strong year-on-year earnings and revenue growth is forecast to continue • Breaking through the $200MM milestone in FY12 (1 year ahead of plan) and the $300MM and $400MM milestones will also be achieved within the MRP period • EBIT CAGR of 28% across the plan • Revenue CAGR growth of over 14%, breaking both the $1.5B and $2B barriers within the plan Margin* pressure continues but expected to rise from 18% to 22% across the plan • MSM India is forecast to have double digit margins (18%) • Rising content costs, increased broadcasting costs from HD roll outs and the investment in ad sales and affiliate infrastructure keeps margins in check Continued annual investment in new operations will underpin future earnings growth • Thirteen investments from prior years are expected to become profitable in the next 3 years • Separately, the six planned launches/acquisitions in FY12 are expected to collectively generate $13MM of positive earnings in FY15 * Margin excludes GSN PPA to normalize year-on-year progression 49 Networks: Challenges and Opportunities Networks: Organization Overview • TBD Org chart highlights select individuals Networks: Where we can we do better • TBD Closing Television: Big Ideas for Change • TBD