RUSSIA / UKRAINE / OTHER CIS INVESTMENT OPPORTUNITY JULY 23, 2007

Transcription

1 RUSSIA / UKRAINE / OTHER CIS INVESTMENT OPPORTUNITY JULY 23, 27

2 Executive Summary SPTI has an opportunity to launch its first channel in Russia and the CIS and provide a platform for a strong networks business in a high-growth, emerging territory AXN Sci Fi targeted to launch across various cable, DTH and IPTV platforms Dual revenue stream from distribution and advertising Programming to showcase Science Fiction, a genre which has performed well on FTA stations and in publishing, but has no dedicated channel on Pay-TV No local office planned at launch Local distribution representative Media Broadcast Group (MBG) will provide sales, marketing, invoicing/collection and content versioning Channel will leverage existing networks admin and technical infrastructure in London Projected Deep Water Mark of $2.MM, post-tax NPV of $.5MM and posttax IRR of 29% Request approval to launch channel 2

3 CIS TV Market Overview Economies are growing; 5 8% annually Russia and the Ukraine comprise ~72% of PayTV subs The majority of population currently pays a nominal fee (<$1 $2 per month) to receive social tier channels (16 in Russia, 3 in Ukraine) Basic (and Extended Basic) Tier packages offer social channels plus commercial channels for $6 $1 per month in Russia Pay TV across the region has large subscriber and pricing growth potential Current CIS Cable TV Landscape (MMs) Investor Operator Pop TV HH Russia Nafta Moskva Mostelecom NCN (TKT) Renova Media Comcor (Akado) Teleinform AFK Sistema UCN, Esta, Inform Svc Perm Fin. & Industrial Er-Telecom Other Operators Total Russia Ukraine Total Ukraine Total Other CIS TOTAL CIS Homes Total Passed Subs Volia Small Operators Vision TV Social Tier Basic Tier Source: MBG, Volia, Deutsche Bank. Excludes DTH. Coverage Monopoly in Moscow 7 Regions (largest St. Pete operator) Moscow (strong broadband capabilities) Moscow 16 Regions (also has 1K IPTV subs) Largest Ukraine operator Analogue Launching December 27 3

4 Russian TV Market Overview The Russian TV market has huge growth potential Russian TV advertising expenditure low, but growing rapidly significant market potential Russian TV advertising market projected to grow at a 24% CAGR from January 28 New Media Law to reduce ad time on free-to-air by 25% (from 12 to 9 minutes per hour) ad dollars expected to migrate to cable Moscow and St. Petersburg comprise 4%+ of the total Russian advertising and cable market Nafta Moskva and Renova Media are the two largest operators in these cities Pay TV offerings are rapidly expanding due to significant infrastructure investment Cable operators currently offer social and premium packages (basic, extended basic, VOD, PPV) Premium and digital service penetration currently low, but expected to gain traction as service offerings expand NTV+ is Russia s first DTH platform launched in 1998, currently has 5K+ subs (but charges high monthly fee) Russian Digital TV Growth 4,5 4,184 41% 4, 3,5 3, 2,5 4% 3,453 36% 3% 35% 2,757 3% 25% 2,118 25% 2, 1,5 45% 21% 1,498 2% 15% 1, 1% 5 5% % Digital Cable Subs % Growth 4

5 Strategic Rationale Expands SPE s international channel footprint into a high potential TV market and provides a strong platform to build a larger channel portfolio Content First Hollywood Studio channel with high-end western Sci Fi / Supernatural content in the region 4+ new channels to launch in Russia between 27 28, none addressing the Sci Fi audience Sci Fi content has performed well on FTA stations and in the publishing world Unexposed, quality Sci Fi content available from major licensors Content from local production group in Moscow Ad Sales Video International (Russia s largest ad sales house) projecting growth of 39% this year alone in TV advertising and 24% CAGR Increasing importance of niche channels in TV viewership (2% share in 2 to 14% this year) January 28 New Media Law should accelerate Pay-TV ad sales growth Strengthening interest from international advertisers for Russian airtime Distribution Benefits from Renova Media and Nafta relationships largest operators in Russian market Operational leverage Channel leverages existing global creative graphics package and regional operating infrastructure to enhance profitability Speed to market Ability to launch on quick timeframe due to MBG services and current SPTI London office infrastructure First mover advantage by launching the only 24-hour Sci Fi network in the CIS 5

6 Programming Strong quality titles available for the CIS market based on preliminary avails from major studios (Disney, MGM, Paramount, Sony) including Stargate, Andromeda, Star Trek, Ghost Whisperer (and potentially Lost) Fresh and exciting new programming for CIS audiences 8-hour programming wheel 3.5x repeat rate, 6% refresh rate Average license fee estimates: Russia: $2.8 $4.5K per episode for series; $25K per movie Ukraine and Other CIS: $1.2 $2.5K per episode for series; $15K per movie Versioning is competitive with local providers and similar pricing available from WPF in London 6

7 Indicative Grid Note: Titles shown are for indicative purposes only and subject to change. 7

8 Launch Assumptions Targeted Launch Date: November 1, 27 Discussions initiated with Comcor, Nafta and Sistema in Russia, and Volia and Vision TV in the Ukraine Russia and Other CIS (excl. Ukraine): MBG (Media Broadcasting Group) 3rd party service provider which provides sales, marketing, invoicing and cash collection, and local versioning (voice over and full dubb) and acts as distribution agent Currently represents foreign broadcasters such as Nickelodeon, BBC Prime, and Discovery 1% distribution fee Ukraine: Vision TV DTH platform launching December 27 Vision to transmit channel throughout the Ukraine on its DTH system as well as on Volia and other Ukraine cable operators 8

9 Financial Projections Base Case Pre(All figures in USD Thousands) Total Subscribers REVENUE Net Advertising Revenue % of Total Revenue Net Subsciption Revenue Total Revenue AXN Sci Fi Russia, Ukraine and CIS Launch Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 1 1,285 2,545 3,728 5,57 6,487 7,142 8,4 8,971 9,897 1, ,9 2,82 4,974 6,969 9,484 11,568 13,451 14,89 % 9% 25% 3% 37% 42% 47% 49% 51% 51% ,19 3,4 4,8 6,359 6,549 9,369 8,48 13,382 9,62 16,589 1,721 2,25 12,133 23,71 13,158 26,69 14,472 29, % 85.2% 47.3% 42.8% 24.% 21.8% 17.3% 12.3% 1.3% % Growth Programming Year 1 TOTAL 66,41 83, ,416 3,89 6,85 4,499 4,724 5,8 7,41 7,394 8,497 9,6 1, % 177.2% 7.8% 5.4%.7% 42.4% 36.6% 35.8% 36.3% 34.5% 6 6 4,326 8,217 4,564 1,649 4,719 9,218 5,131 9,856 5,567 11,422 6,2 13,62 6,481 13,874 6,933 15,429 7,426 17,81 7,939 18,76 59, ,44 EBITDA (6) (7,812) (7,215) (2,859) (487) 1,96 3,527 6,331 8,271 9,528 11,286 21,976 Depreciation EBIT 4 (56) 36 (7,848) (7,258) (2,914) (542) 1,918 3,485 6,276 8,229 9,486 11, ,516 Cume EBIT (56) (17,24) (13,719) (7,4) 786 1,272 21, % 21.% 31.1% 34.7% 35.6% 38.3% 8,545 (425) (2) 1,442 9,7 Programming % of Net Revenue Other Expenses Total Expenses EBIT Margin (8,48) (15,666) (18,579) (19,122) (194.1%) (211.4%) (45.8%) (5.8%) Free Cash Flow Net Income (Incr.)/Decr. in Net Working Capital Plus: Depreciation Less: Capital Expenditures Net Program Acquisition Adj. Free Cash Flow (56) 46 4 (5) (2,225) (3,87) (7,848) (7) 6 (7,684) (7,258) (546) (2) 1,964 (5,73) (2,914) (446) (5) 61 (2,757) (542) (471) (7) 277 (811) 1,918 (645) (2) 456 1,696 3,485 (524) (5) 1,9 3,944 6,276 (571) (7) 751 6,378 8,4 (9) (2) 93 8,345 7,29 (473) (5) 1,373 8,76 Cume Free Cash Flow (3,87) (1,77) (16,474) (19,231) (2,41) (18,345) (14,42) (8,24) 321 8,398 17,9 Free Cash Flow Terminal Value (1x Y1 EBIT) (3,87) (7,684) (5,73) (2,757) (811) 1,696 3,944 6,378 8,345 8,76 CASH FLOW + TV (3,87) (7,684) (5,73) (2,757) (811) 1,696 3,944 6,378 8,345 8,76 9,7 112,7 121,994 CUME CASH FLOW + TV (3,87) (1,77) (16,474) (19,231) (2,41) (18,345) (14,42) (8,24) 321 8,398 13,392 Total Investment Post-Tax NPV (1%, 1x TV) Post-Tax IRR Cash Flow Breakeven Year Cume CF Breakeven Year (2,41),494 29% Year 5 Year 8 67,778 16,352 (4,421) 46 (49) 6,62 17,9 17,9 112,7 13,392 9

10 Risks and Mitigators Risks Ad Sales in Russia do not meet business plan assumptions Mitigators Collaborate with other international network providers (e.g., Discovery) Leverage close relationships with Video International / Gallup Possible risk in programming costs due to Increase repeat rate (buy lower volume) competitive market for current titles Year 1 and 2 pricing ready to close with key suppliers; impact of increases over the plan mitigated by cost savings in other areas Distribution of channel does not keep pace with business plan assumptions Potential upside from NTV+ distribution Large future growth across other CIS Potential upside from Renova relationship, additional channel opportunities MBG does not meet quality expectations Leverage existing SPTI facilities in Moscow New options as Pay-TV market develops 1

11 Next Steps SPE and SCA approval Negotiate and finalize carriage terms with key carriers Prepare for launch 11